Wall Street's Answer to Cancer

It sounds almost too good to be true: making money by curing cancer? How can something so unequivocally good for humanity also yield a financial return? But that is precisely what UBS recommends for its ultra high-net-worth clients. Those who have dollars they can put away for the long haul can now invest them in potentially life-saving cancer research and hope for a venture-capital-like return down the line.

The Swiss wealth management giant has also partnered with MPM Capital, a bio-venture fund manager with a long record of identifying breakthrough therapies and creating companies to bring them to market. As of mid-December UBS had raised $340 million for their joint oncology initiative.

This is called impact investing, and if you work in financial services or you're a millennial, it's pretty likely that you've heard of it. On the other hand, you may not actually know what it means. Some confuse it with so-called socially responsible investing (SRI), which does not always aim to offer a competitive financial return. But impact investing has been billed as a different breed, specifically designed to give investors strong risk-adjusted returns, which should bring the asset category far wider appeal.

Oncology research is a perfect target: not only has nearly everyone been touched by cancer, there are important gaps in research funding, and today approvals for cancer drugs are fast tracked. All this means the potential financial returns are great for investors with long-term investment horizons. And of course, nothing can compete with the potential personal rewards that come with helping to save lives.

I first heard about UBS's oncology investment work from Simon Smiles, Chief Investment Officer for Ultra High Net Worth at UBS Wealth Management, who I met in Hong Kong at Asian Financial Forum a few years ago. With this news, I was immediately floored by the idea that the wealthy could put their riches to work in such a beautiful and life-affirming way, so I circled back to Simon to find out more about it this week. Below is an edited excerpt of our conversation about UBS' oncology impact investing drive and its efforts to bring impact investing into the mainstream.

April Rudin: What makes oncology research a great investment right now?

Simon Smiles: It's an investment thematic we've been looking at for well over a year. You start with an incredible social need: unfortunately cancer has impacted almost everyone. One in two men will contract cancer in their lifetime and one in three women, and those numbers are only going up, in part, because we've cured a number of illnesses that used to prove fatal to people. The good news is the scientific breakthroughs we've had have started to gain particular traction, with the human genome project, the HPV vaccine, which is largely eradicating cervical cancer among adolescent girls. Looking forward we've reached a path where we are not just curing cancer but curing cancers.

And then the third element, it's a very favorable regulatory environment, with the fastest approval for a cancer drug by the FDA earlier last year. At the end of the day, when you're dealing with an illness that can become terminal for people within a relatively short period of time, a drug which has efficacy and can potentially save a person's life tends to be approved irrespective of the relatively minor side effects. So favorable regulatory environment, incredible advancements in the science and dire need, and this is going to be an investment opportunity, not just for one-two-three years, but more likely one-two-three decades.

Rudin: What kinds of investors can make the biggest impact with this kind of investment?

Smiles: It fits perfectly with many of our clients. One advantage private investors have, is the ability to deal with illiquidity, and they also have the opportunity and the default to think long term. Almost every one of the ultra high net worth clients I speak to has either made their money in business or has inherited a family business which has led to their wealth. And when you're running businesses over the course of a lifetime or lifetimes, as with the case of a family business, you're not typically thinking about a quarterly earnings cycle, you're thinking about the longer-term strategy. Investment themes that naturally lend themselves to an illiquid structure are a very good fit with the investment preferences and advantages that many of the ultra-high-net-worth investors have. When you think about institutional investors, where you're being benchmarked on a weekly, monthly, quarterly basis to the returns of your peers, you simply can't afford, based on career risk, to take the same kind of long-term view with respect to your investment profile.

Rudin: How does UBS select the kind of oncology research it will invest in?

Smiles: There are a number of ways to invest in oncology research. The large pharmaceutical companies have varying degrees of exposure. One area I believe has particular promise from a risk-return profile is academic research, and specifically at that early stage, proof of concept trials. It's at that stage that inflection with respect to valuations comes through and it's an area where if you're partners with the right kind of manager, and with experts in the field, of which there are relatively few, there is real value.

Taking the bigger picture view, and looking at this stage of the research, the investment opportunity plays into the advantages that our ultra-high-net-worth clients have, the long-term view. In addition to that, you not only end up with an investment that not only has very favorable risk-return characteristics, but also, has the additional element that at the end of the day, you're making a return on your investment by helping to cure cancer.

Rudin: What will it take for impact investing to reach the mainstream?

Smiles: Impact investing to date has been a very niche area. There've been particular advocates and there's been a lot of passion among that very small part of the industry and client based focused on it. But for the mainstream investors that we talk to, they often get confused about the blurred line between giving and investment. And they'd often prefer to give to charity or philanthropy rather than invest in something that will offer what is often perceived as a substandard return.

And so changing that paradigm, and focusing on things with a fantastic risk return, in line with venture capital returns, that can also do good is something that resonates, or has been resonating with our clients.

We would like to see impact investing go mainstream. As the largest wealth manager in the world, we are committed to trying to do our part to effect industry change. And the two areas, is one, focusing on larger scale opportunities rather than niche, very small opportunities, which can also have social impact. The second is, changing the paradigm. In the past, many impact investments have been presented to clients as, "you should invest in this because it's good, and you might make money." Instead, we're flipping that on its head and looking for great investment opportunities with really attractive risk-return, which also do good. That change of paradigm has had a pretty profound effect on clients' willingness to consider them, in particular clients who had never identified as impact investors.

Rudin: Aside from oncology research, where else can these kinds of investment opportunities be found that are both mainstream impact and have really attractive risk-return profiles?

Smiles: We're looking at a range of different areas and the opportunities abound. You look at the dire global need for food, and food that is produced in a way that is environmentally sound. There is a huge increase in demand for protein. Unfortunately traditional sources of protein such as meat are very water intensive and energy intensive. Aquaculture, fish farming in particular, is a potentially great area for further investment. Done in an ecologically and environmentally sound fashion you can have a very positive impact on the environment and generate a sustainable source of protein, while also making fantastic risk return. There are opportunities to work with governments to increase the energy efficiency of buildings through retrofitting and to make a significant and attractive yield return on that investment. We've looked at pooled catastrophe risk. So it's quite a wide range of areas. The commonality being we're looking for really compelling investment returns in areas that also do good and have a positive impact.