This week’s All Out will be a bit different. I’m going to ask for a favor, if you have found any value at all in these newsletters, I would ask you that you please read this and reach out with what I’m going to ask for at the end. I’ve kept it short and sweet, so you have no excuse.
But first, we want to share some exciting news. This past week we officially became Chair of Finance (of the advisory council) to the Reynold’s Foundation. The Reynold’s Foundation is a non-profit organization dedicated to the promotion of freedom and democracy, education, and spinal cord research. The Foundation is going to donate $500M over 10 years and K Squared will help in the managing of the investments over this time frame. The founder and Chairman of this foundation is the co-founder of Jane Street Capital, one of the most reputable and successful market makers in the world. K Squared Capital’s own directors will serve in the board of directors and advisory council. We’re very proud of this development as it signifies not only a huge vote of confidence, but also helping out for great causes.
Some months ago (probably a bit over a year ago), we were sitting in a meeting with the dean of faculty of INCAE business school (constantly ranked amongst the top business schools in the world). He told us about Maria, the head of HR for a Paraguayan distributor, who had scored a 767 (out of 800) on the entrance exam and was rated as an A from the admissions committee. Even though Maria had a great score and had very bright prospects, she couldn’t afford INCAE, she didn’t qualify for a scholarship and was not able to obtain a student loan. Therefore, a hardworking, bright student was not able to accomplish her goals of getting an MBA (we won’t go into the benefits of education, but we’ll assume we are in agreement that more education is better than less).
After that call we got to thinking that this didn’t make any sense. Presumably she couldn’t get credit because of a lack of credit history or lack of assets to post as collateral. In the end a bank looks at each person’s credit rating to see if they loan money. A terribly bright student with no credit can’t get a loan, but a terrible student with money or assets probably can get a loan. With a student loan your ability of repayment is correlated to the job you get when you graduate, not necessarily to your credit history. It’s hard to pay off a loan if you’re unemployed (just ask the 25% of students who default on their loans within 5 years). We started thinking of a way to structure financing based on the potential of each student instead of looking at their credit history. This is where income sharing agreements (ISAs) come in. You can read the link for details, but essentially with an ISA you pay a % of your income. If you earn more, you pay more, if you have no job, you pay 0. It’s a way of monetizing your future earnings potential today.
I think you can see where we’re going with this. K Squared, along with Caricaco, Facio & Cañas, and Stratos, we are launching Puente. Puente is a solution designed to help young, bright students get a leg up in life. Puente will finance students through ISAs. For this first iteration we are working with INCAE to finance students in their Master in Analytics, Innovation, and Technology (MAIT). Our aim is to fund 4 – 6 students in this first batch. Our long-term goal would be to finance many types of education ranging from master’s students to kids in public school (they don’t need to pay for school but might need help elsewhere), and expand regionally.
Puente will be structured as an investment fund, in which the investors’ (hopefully you) money will go to finance the students’ education. The return will be generated from the students’ monthly payments. The idea behind Puente is to make real impact, so monetary returns will probably be pretty low, but the social return should be extremely high; especially when we scale this up regionally and are able to finance more education levels.
This is where we need your help. Caricaco, Facio & Cañas, Stratos and K Squared Capital are contributing to this first batch pro-bono. K Squared along with Caricaco are going to put up the initial seed capital to fund a couple of students, but the more money we can put to work the more impact we can make.
If you would like to be part in any way, we would be more than happy to have you on board. We are asking for any experience/contacts/ideas/etc. that can help us make this a success. We originally presented the idea at the BLISS Summit this year and several prominent family offices and investors pledged their commitments.
If you’ve read these newsletters for a while, you know that we’re critical of ESG investing in public markets. Well, here is your chance to help shape something that will make a true impact. I truly hope you reach out. (you can hit reply, or e-mail me directly at [email protected]).
