I'm David Bank and from Impact Alpha, this is an Agents of Impact podcast. Given our financial independence, given our set of resources, Wes, if anything, is really looking to double down on our commitments and stay in solidarity with our communities. That's Smitha Daz of World Education Services or Wes. Wes is the rare asset owner and impact investor that has amassed its balance sheet not from a wealthy individual or a major corporation, but from the operations of its own non-profit social enterprise. Wes is now on a path to 100%. That is the investment of its $300 million in assets in full alignment with its social mission. That makes Wes a true Impact LP and part of Impact Alpha's growing network of asset allocators and owners. Smitha understands that LP stands for leadership potential. I think you'll enjoy the conversation. Smitha Daz, it's so nice to have you here with us today. Great to be with you, David. Smitha, I've been tracking your evolution at Wes there for a number of years and I'm just always so taken by the organization's steady progress, but also just like sustained commitment, I guess you'd say. I think folks don't maybe understand enough about Wes, but one of the things that you've schooled us on is the role that LP is. Wes is an LP in the context of having $300 million on the balance sheets to invest in this moment now. I know Wes is really trying to stay the course. Maybe tell us a little bit about Wes, but also tell us what the role of an LP now is in this moment, as we say. Absolutely. It's so good to be with you and be part of this podcast. I've always been such a fan and deep reader of all things Impact Alpha. I'm deeply grateful for the partnership. World Education Services or Wes, for short, we actually identify as a global social enterprise. While we're structured as a nonprofit of 501c3, we are in fact fully self-funded from our operating revenues through our products and services. That's why we operate as this social enterprise in between the realms of traditional nonprofit and traditional for-profit. What that's meant for the last 52 years at Wes is that we have actually always been self-funded. Our core products are actually serving international students and immigrants to move around the world. I just want to underline that Wes built a tremendous business of helping students, as you say, around the world get their credentials from their home countries recognized and honored in their new countries. That turned out to be a big business that has now created this endowment or this balance sheet. Exactly. The core problem that we're solving is for internationally educated individuals, how can we ensure that their education, skills, and experience can be valued anywhere in the world and really bring trust and validation to those individuals? The business has grown, as we said, and it's actually grown as global migration has grown. I know you're then in the thick of global migration issues, I imagine, and track that all very closely. You're the director of investments. How do you think about Wes as an investor? I know you're in this unique position as an investor and an operator, but you're on the investment side. What is Wes's leadership role as an investor? Within our social enterprise model, we really have three core pillars. We have the revenue generating products and services that we spoke about. We also have systems change initiatives that really encompasses our policy, program, philanthropy levers for impact. I think about the mission online investing work as a bridge between the revenue generating side and the systems change side. How do we actually activate every single dollar, every single resource at Wes to drive towards our mission and values? That's the journey that we've been on over the last five years. We're on what we now are short handing, the 100% journey, as you said, all assets aligned and pointing in the same direction. That is, turns out, I know to be something of a challenge. Just tell us a little bit about how you came to that commitment at Wes and also how you've implemented it. Well, it's been a journey, as I said. Before we made that commitment in 2023, say there's been a lot of conversations at the executive team level and the board level within Wes to think about this concept of stewardship. We fundamentally came to this understanding that stewardship of any mission driven organization must include both financial objectives and mission objectives. If we didn't include both perspectives, we were not thinking good stewards of our mission. With that kind of fundamental belief and really alignment with the board, we made that commitment and updated our investment policy statement at the end of 2023 to commit to align all of our resources towards mission alignment. I'm happy to say when I first joined Wes and we had started our impact investing journey, we were a 4% or 5% carve out of the balance sheet. Now we, with the 100% commitment, are already at 60% mission alignment. That's really thanks to a kind of rotation of our public market portfolio to be mission aligned. And is mission aligned broadly speaking or mission aligned with the Wes's mission, as you said, of helping students, helping immigrants, helping migration, the refugees generally? That's a great question. Because we're stewarding balance sheet assets, we have to think pretty broadly in ways of portfolio diversification and risk management for Wes. We think about diversification across asset class, across geography and also across theme. So the way we break it up is we have mission all central themes. Those would be themes around immigrant lens investing, really access to good work for immigrants, the core mission and focus for Wes in the next 10 years. So that could include workforce development, perhaps the care economy, employee ownership, mission aligned themes we think about as a broader bucket. So perhaps thinking more about the social determinants of good work, social determinants of supporting immigrants through their journey. And that could include concepts around climate, health, responsible AI, financial inclusion. So we really do have a pretty broad portfolio where you see particularly in our catalytic portfolio, which we can get into more of an alignment with our strategic focus. Now you're kind of different than a family office, even different from a foundation. As you said, you're an operator, a social enterprise. What are your return expectations from the folks that you report to? What do you have to deliver and what hurdle rate do you have to meet on these things? Yeah. And to your point, I believe that this kind of commitment to 100% is the first of its kind within our nonprofit kind of operating sector. So that's really exciting. And we're hoping more folks join us on this journey. Actually, just pause on that so folks know what category you're part of. There are healthcare conversion foundations. There are some educational, I think, student loan conversions over time. So you're not unique in that regard. There's a whole roster of nonprofits that have very successful businesses that then accrue balance sheets. So it's an interesting sort of third category. Yeah. So we have exactly kind of still an operating organization, which perhaps makes us look a little bit more like corporate balance sheet assets than say even a corporate foundation. So from that perspective to your question around what is the financial hurdle that we're looking for, in our investment policy statement, we are looking at a target return overall of 4% to 5% real return. So that is relatively standard. I think a 5% real return is pretty standard in the market. In our asset allocation, we have delineated different assets and what ranges we want to allocate to. In that table, we also included an allocation to catalytic investing, which we benchmark to inflation, really capital preservation. And so I do think we're trying to build some flexibility in our kind of guardrails around financial return where we understand we can invest across the spectrum of capital while still adhering to West's financial goals as well. And are there areas where you think that the impact thesis or the alignment thesis actually generates outperformance? What we like to call impact alpha, certainly migration and is a growth industry for better or worse right now. We're absolutely saying that in our portfolio already where you're seeing that with that intentionality, you can really invest in a way that's aligned for impact. In the way we invest across our spectrum of capital, we're trying to demonstrate particularly in our thematic portfolio, which is benchmarking to pretty traditional financial hurdles in regards to say private market benchmarks or even in the public markets, really kind of the hurdles that you might expect in any investment policy statement. But doing that in a way that is really being thoughtful around the impact across three dimensions, who you're investing in, what you're investing in, or how you're investing. And we think about the dimensions of impacting those ways. Let's take a little more into the how because I know you've been very interested in that over time and been a champion of what has come to be called trust based investing, which is I think a little bit off the wavelength of most traditional investors that you would actually trust the folks that you're investing in. How does that actually work? It's a great question. I remember that's something we were talking about. Maybe five, six years ago together. Trust based investing is relationship based investing. And so what we try to do is really kind of think partners, you know, partner first. How do we think about the partnership, strategic partnership, catalytic partnership, impact partnership with any organization that comes into our funnel? And we really tried to explore what that could look like through the diligence process as well as even after the check. And so from that perspective, it looks like being transparent, holding ourselves mutually accountable, thinking about doing our own homework and reducing burden on partners through diligence or after. And then even like I was saying, supporting beyond the check, what are other ways West can leverage its social capital, network capital, even political capital beyond, you know, the financial capital that of course we offer our partners. And you've mentioned the catalytic portfolio several times and that has a lower hurdle rate, but it also probably has a higher impact hurdle rate. You're trying to make some sort of outsized impact with it. So how do you see your role as a catalytic investor? Yeah, in some ways, that's where West's story started. When I was first hired, we started with the catalytic capital carve out just the way it was carved out philanthropically and kind of in nature. And so from that perspective, we have a really robust portfolio of over 30 partners in our catalytic portfolio. And they span, you know, debt investments, equity investments, blended finance, and all things in between. And we really found that we can demonstrate flexibility through our investment structures so that we can ensure that there's high fidelity to impact. And we have really just been encouraged to also even see how we can demonstrate and build a runway for some of our investments in the catalytic portfolio that perhaps could even take our thematic capital in the future. And so when we think about catalytic capital or impact first capital, we don't necessarily mean concessionary capital. We mean highest fidelity to impact risk tolerance, flexibility and patience. And that can be again, across the spectrum of returns. And you have a notion that there's still a missing middle. People sometimes use that for to cover anything that's missing. But what do you mean? What do you mean by missing middle? Missing middle. Yeah, that is something that we've been really exploring specifically in the education to work for space where you see a lot of investments, kind of just philanthropic grant making and in the ed tech or future of work venture capital space. But what is that missing middle of financing for really strong businesses that can grow, but perhaps not at that venture scale? Right. What is the type of financing? Perhaps it's private credit. Perhaps it's guarantees. Perhaps it's recoverable grants. How do we think about right sizing the capital structure to, to the investment? And that's where we're really trying to hone in the scale of diagnosing capital market fit in our portfolio. Okay. Now let me ask you sort of to think about it from, from the, from the outside. So if folks listen to this podcast and say, okay, well, Wes is doing trust based and catalytic and missing middle financing, but they're a social enterprise and that's not us. We're a hard nosed investor of some sort. And so how is that relevant to us? So what have you learned in, I would guess, more mainstream? I don't always like to use that word. Sometimes we use legacy financial categories and asset classes that might be useful for, for other folks and particularly folks who want to better align their endowments or their, or their, or their assets. Yeah, absolutely. You know, I think beyond the, the kind of the frontier work that we're doing, perhaps on the catalytic side, we are rotating every asset class at Wes to be mission aligned from our cash to our public equities and fixed income. Right through more commercial rates of return seeking capital within the private markets as well. Absolutely. And so in some ways we're trying to demonstrate different things in different parts of our portfolio. So particularly in that more kind of commercial rates of return seeking capital, we are trying to demonstrate and be yet another data point in the market to show that you can advance mission alignment as well as adhere to the fight, you know, fiduciary duties of being a strong investor as well and, and reduce risk. And so that's where in our portfolio approach, we're really looking at these four dimensions around risk, return, liquidity and impact in trying to achieve those goals. Maybe just as an example, and I know you've been very keen on this notion of an ownership economy, a kind of a different way to slice through some investments that, that takes into account kind of the share of, of, of returns of who gets what, including, including workers, including communities, including, including folks who have often been excluded from ownership. Where does that fit in this scheme of, you know, from, from catalytic to, to commercial in the, in the West portfolio? And we're excited that the ownership lens at investing, which we love that kind of concept of the lens, like it really across those asset classes as well as spectrum of return. So there are some investments we've made, like for example, Just, which is a fantastic organization in Texas, really advancing economic inclusion and financial access to Latino women, particularly within Texas. We are replicating a home ownership model there, which is offering down payment assistance for those individuals to move up into owning appreciating assets. So we're very excited about that kind of demonstration project, all the way to perhaps a fund that we've invested in, for example, like APIS and Heritage Capital Partners Fund 1 and 2, which are really bench make benchmarking to more traditional private credit rates of return. And so it, so I do think the impact can happen across the spectrum. And that's why we take this capital market fit approach. How do we right size the investment structure to, to the opportunity? Well, Smith, as I said, I've been very impressed as I've watched West as, as, as the organization has moved from the successful social enterprise and now to this effective and I think influential LP and asset allocator in the space. And I know the organization's, you know, doesn't rest. I understand there's a new 10 year plan, particularly around helping immigrants. And that's obviously timely. So tell us a little bit about that. Yeah, West does have a new 10 year strategy, which is focused on accelerating access to good work for immigrants. We believe that unlocking immigrant talent is essential to our collective economic future. And so when workers, including immigrants have access to good work, everyone wins. We're using all the tools in our toolbox from our policy and philanthropy to our programs and portfolio, as well as our products, right, that generate revenue to advance education, skills and experience recognition for our communities, as well as create an enabling infrastructure for immigrants to thrive, such as really shifting the narrative and policy agenda around building that economic kind of case for immigration, as well as thinking about even building community power, you know, from the ground up so that we can kind of create structures that are enabling for immigrants. Well, Smith, it's a serious question to be so identified as an organization with immigrants, with migration. At one point that would have been, you know, gone without a particular question. Now it's a kind of provocative position to be in. How does how do you and how does Wes navigate that? Yeah, yeah, it's an important question, David. I think it's a deeply challenging moment for our communities, right? And so we're given our financial independence, given our set of resources. Wes, if anything, is really looking to double down on our commitments and stay in solidarity with our communities. And, you know, partly we are very cognizant that immigrants are, first of all, not a monolith and second of all, play an outsized role in our economy. So when we're supporting immigrants, we're supporting kind of broadly economic inclusion. One in five workers in the US identifies immigrants. And really you see that across sectors. And so again, if we're supporting the economic kind of opportunities for immigrants, we're really driving that broadly for our country. You talked about the sort of narrative shift. And I've always been taken with how out of whack the dominant narrative is with the facts in terms, as you said, immigrants as a huge net positive for the economy as a source of young people, frankly, in a world that's getting older as a source of talent and innovation and incontrovertibly kind of necessary and sort of one of the secrets of at least the US success story. Yet the narrative goes in the other direction. How do you talk to us shifting the narrative? How do you do that? Yeah, it's a great question. And, you know, you just said it so well, so maybe we need to get your engagement on how we do that. But, you know, I feel like it really is through partnership with others. And understanding that inter immigrant lens investing, it is really an intersectional approach, right? Immigrants intersect with various different sectors and geographies and also looking at other, you know, thematic areas, maybe other organizations may be interested in. And so that's where we really try to be bridgers to think about, OK, what is perhaps the lens that you're taking to your philanthropy or your investing, your policy work and where do you see intersections with immigrant communities? And often, you know, there are plenty, but we just need to uplift that perspective. And so that's really what we're trying to bring to the table is that intentionality and focus on immigrants. But really, if you look around our economy's local, global individuals are moving around the world at a pace that is not going to stop. And within, you know, even the U.S. context, immigrants play, again, a very important role, like you were saying. So I think often we can find those moments of bridging and being kind of that kind of neutral convener, just given West's, you know, unique position. I imagine West has a storehouse of data on the economic contributions and achievements of the folks who have used the use the Social Enterprise Service itself, because they are, by definition, coming in as educated and professionals and whatnot and and and making making good on the American dream for their own families and themselves. We have a whole research team that's looking at that. So maybe as we go into that 10 year strategy, we're in we're in quarter one of said strategy, but really would, you know, encourage everyone to stay tuned on what, you know, we're going to be up to in regards to that new direction, as well as perhaps ways to partner with us. Great. Well, Smith, thank you for joining us and we'll have you back again to update us on the strategy and on West. Thank you. Sounds great. Thanks so much, David. That's going to do it for this Agents of Impact podcast. Big thanks to Smith Adas and to West, to our producer Isaac Silk, to the whole team at Impact Alpha and to all of you Agents of Impact with deep gratitude for all that you do.
