Turner Impact Capital CEO Bobby Turner discusses his efforts to cure society's challenges.

Bobby Turner, principal and CEO of Turner Impact Capital, describes himself as an “evolving capitalist.” After achieving tremendous success as chairman and CEO of Canyon Capital Realty Advisors, Turner took the considerable skills and knowledge amassed in his career to create a business that tackles some of society’s most pressing problems. As he explains to Katherine Klein, vice dean for social impact at Wharton, doing good isn’t just the domain of philanthropists. Through impact investing, it is possible to turn a profit, satisfy stakeholders and raise up a community all at the same time.

An edited transcript of the conversation appears below.

Katherine Klein: Twenty-five years ago, you were a co-founding partner and CEO of Canyon Capital Realty Advisors. You stayed with the firm for many years, but about two years ago, you founded Turner Impact Capital. What’s different, other than assets under management?

Bobby Turner: What’s different is the opportunity to spend 100% of my time and energies focused on something that I’m fanatical about. For the vast majority of my career, I was both a capitalist and a philanthropist, and I struggled at both. As a capitalist, I was a partner in one of the world’s largest hedge funds for 25 years of my life. I created great wealth. But the sense of accomplishment was parallel to the amount of wealth that I had created. So, I really struggled at making my change meaningful. As a philanthropist, I struggled at making meaningful change. I had given millions of dollars away of my time and my energy and my money, only to put Band-Aids on treating some of society’s most daunting challenges. I realized in many instances, I was treating, not curing. And I was actually creating and funding a legacy of dependency.

It was only about 15 years ago, with the help of my wife, that I evolved. I evolved from a capitalist, whose sole metric of success was just making money, to one that could also superimpose the impact on the stakeholder community at large….

Katherine Klein: What changed, and what was your wife’s influence?

Bobby Turner: My wife is a very good barometer on everything real and authentic. Many years ago, she looked around at the community and said she wanted to purge a number of relationships that we had. I asked why, and she said she didn’t think that these families were actually rooting for our success. I think it takes that kind of wisdom that my wife has to help me oftentimes put my trajectory back on the right course. It’s not always about the destination in life, it’s also about the journey. And my wife’s a very good journeywoman. I’m a good destination guy, but she balances me with the importance of the journey.

“As a philanthropist, I struggled at making meaningful change. I had given millions of dollars away of my time and my energy and my money, only to put Band-Aids on treating some of society’s most daunting challenges. I realized in many instances, I was treating, not curing. And I was actually creating and funding a legacy of dependency.”

We were always interested in philanthropy. She recognized my frustration with philanthropy. It was her suggestion, if you could take the acumen and the prowess that you had as a capital investor and apply that — your profit-driven mission to the purpose-driven mission — you probably could scale and create sustainable solutions to the issues that are so near and dear to you.

Katherine Klein: Then the light bulb went off and you thought, “I can invest in charter school facilities, and I will have substantially greater impact through an investment practice.”

Bobby Turner: Most people tend to bask in their glories; I tend to dwell on my failures. Over a seven-year period, as a not-for-profit, I was very actively involved in an organization where, with the help of Bill and Melinda Gates and Eli Broad, we built 38 public charter schools in probably some of the most economically challenged neighborhoods of Los Angeles. Fifteen thousand school seats. The problem was that for each of those school seats, there were three kids on the waitlist. Nearly 45,000 kids were on that waitlist. I concluded, once again, that what I was doing with the Pacific Charter School Development Corporation, the not-for-profit, is we were treating. We were trying to address. We were being reactive. And the reality was, if you want to treat, then [do so with] philanthropy and government. But if you want to cure, you have to harness market forces to create a sustainable solution. That means making a profit, and there’s nothing wrong with that. The fact is, you can drive better risk-adjusted returns by being purposeful because the realities are that we’re not speculating on demand, we’re just fulfilling the existing demand where the traditional investor in the space has been the government or philanthropy.

Katherine Klein: You partnered with tennis great Andre Agassi to create the Turner-Agassi Charter School Facilities Fund. Tell us a little bit about when the light bulb went off and the stepping stones to “there’s a better way than philanthropy.”

Bobby Turner: I made a cold call to Andre. I like to think of it as a warm call. But I had read his book, and I realized that he and I shared the same passion and frustration for public charter schools. He, as a philanthropist, had built his own K-12 public charter school in one of the most underserved, economically challenged neighborhoods of Las Vegas. Andre was an eighth-grade dropout. He always likes to say that his two most difficult years of high school were eighth grade. But he felt that his responsibility was to give back to those who had the capabilities to succeed if they had the opportunity to complete school. By the time I had met Andre, he had built his K-12 public charter school called the Andre Agassi College Preparatory Academy. He had two graduating classes. A hundred percent of those kids had graduated and gone on to college. His frustration was, while he was educating 1,000 kids at a school, there were 3,000 kids on the waitlist. I called Andre and floated him what he thought was a very novel idea: Let’s take our mission-driven organization, let’s make it for-profit so that we can scale it, create a sustainable solution.

His initial response was great skepticism. He thought that it would be hypocritical of him, as a philanthropist, to make money off his philanthropy. But it was very easy to impress upon him the very simple fact that over the prior 15 years, Andre had raised $175 million in philanthropy to build and operate his school. What he had to show for that $175 million was one school, 1,000 kids in his school and no money in the bank. I said to Andre, “If we were to take the same $175 million and use my business model, in one-fifth of the time, we could have built 50 schools, 25,000 school seats, returned the capital to our investors with a return and done it all over again.” I think that was the lightning rod that made Andre think he couldn’t continue treating the problem with a Band-Aid, or basically evolve from philanthropist to social impact investor, and join me.

Katherine Klein: I’m interested in your turning point. How did that transition happen, even before you called Andre Agassi?

Bobby Turner: I think at some point in my career, my daughter and I had a conversation, a very interesting one, where she asked me, “Daddy, what do you want your epitaph to read?”

Katherine Klein: I love that we’re hearing about the important women in your life.

“I like to joke that for many years as an investor, I was making money off of other people’s misfortunes. At social impact, I get to make money off of tackling other people’s misfortunes, and that just sits better with me as a human being.”

Bobby Turner: Absolutely. We men, we’re fundamentally insecure, and nothing is stronger to make a man successful than a powerful and an intelligent woman. She asked me what I wanted my epitaph to read. And I responded to her, quite honestly, “Sweetie, Daddy went to the Wharton School. I have no idea what the word epitaph means.” When she explained to me it’s what did I want my gravestone to read, I thought it was a fairly morbid question but I indulged her. I said, “When I graduated the Wharton School back in 1984 with this black belt in how to create wealth, it was very clear to me what I wanted it to read. Daddy wanted to have the most change in his pocket when he died. Fifteen, 20 years later in my career, I had created wealth and realized that I wasn’t happy from the wealth. I had also been a philanthropist and realized that I wasn’t happy being a philanthropist.

I realized that what I really wanted my epitaph to read was not that Daddy had the most change in his pocket, but rather, Daddy made the most change in the world. And I realized that I couldn’t do that as a philanthropist. I had enough money to retire at that point in my life, but I didn’t want to retire to become a philanthropist because as a philanthropist, what I probably would have done is just continue to treat problems and create and support a legacy of dependency. So, probably about 15 years ago in my career, I realized that if I really wanted to be happy as a human being and be in balance with my desire to be profitable and purposeful, I had to be one of the first who had the courage to step back from making money for the sake of making money. I like to joke that for many years as an investor, I was making money off of other people’s misfortunes. At social impact, I get to make money off of tackling other people’s misfortunes, and that just sits better with me as a human being.

Katherine Klein: You used your expertise in real estate development to push forward on a particular brand of impact investing, and you’ve had great success with the Turner-Agassi Charter Schools Fund. You have a new fund that you’re raising money for now.

Bobby Turner: We’ve raised a second fund. It’s the Turner Multifamily Impact Fund, which is almost a sister fund. One has to recognize that the challenges we have in society are daunting — be it health care, education, housing — but also recognize that they’re inter-dependent. Having built 34,000 school seats, I recognize that we could do great things for a child’s life between the hours of 8 a.m. and 5 p.m., but if these kids went home to an unsafe, un-nurturing home environment, everything we had accomplished had gone out the window. Recognizing that you can’t tackle one without tackling all three issues of preventative health care, access to great, quality education and affordable workforce housing, then we really weren’t going to re-enrich society.

A number of months ago, I was at a dinner where I was sitting with Larry Summers, Richard Branson, Condoleezza Rice and Chuck Hagel — a very erudite crowd — and the conversation quickly went to what was the biggest challenge facing society? Everyone concluded very quickly that it was the disparity in wealth. When 1% of society controls 99% of the wealth, that’s when you undermine the fabric of a healthy community. I actually don’t believe that. I refute that. In fact, the history and the backbone of America has been built from the disparity in wealth. Now, it may be more extreme today than it’s been in the past. But what we have a disparity in is hope. The reality is the 99% — which, by the way, I grew up with the 99% — we always believed in the feasibility of the American dream. With hard work, with education and a little luck, if you could become the 1%, then you were willing to play nicely in the sandbox. When you’re growing up in East Baltimore, a single parent with two children, and you don’t work one job, you work two or three jobs at minimum wage, you spend 50% of your income on housing at the expense of food security and health security, your kids are relegated to a public school district where the probability of them graduating high school is below 50% and graduating college less than 2%, you have no hope.

“Social impact is not philanthropy. It’s not government, and it’s not a business model that believes one should sacrifice yields in return for a social metric. For me to raise money, to truly scale the impact I want to have, I’ve got to generate consistent risk-adjusted returns without sacrificing yields.”

Katherine Klein: How is the Multifamily Impact Fund, building workforce housing, going to affect people’s lives?

Bobby Turner: No. 1 is, we’re not building workforce housing. We can’t build workforce housing. That’s part of my frustration in life. But just because I can’t build, doesn’t mean I can’t preserve and enrich and improve. We have 43 million renter households in America. Twenty-five percent, over 10 million families, spend over 50% of their income on rent. And again, that comes at the expense of food security and health care security and retirement security. It’s untenable. It’s almost criminal to realize that. But you have this huge mismatch between supply and demand. You’ve got more than 10 million families that can’t afford rent. You’ve got another four million families that will come into the marketplace over the next seven years, they’ll be low- and moderate-income families. No one’s building new workforce housing because, economically, you cannot build affordable workforce housing and drive market rate returns. The worst thing, the most criminal aspect of the housing market, is the existing stock of workforce housing, current market rate housing that’s affordable, or even subsidized housing that comes off as compliance period. When it comes on the market, it disappears. It’s getting sold to more opportunistic investors who have a very simple business model: buy and improve. Get a return on capital by increasing rents. That comes at the very expense of the very constituencies we’re trying to preserve and enrich for.

Katherine Klein: You have a different business model. Describe how it works.

Bobby Turner: The traditional opportunistic investor will buy, improve and drive out the consumer. We buy and enrich so that we can drive the same profitability not by driving up rents, but rather by reducing expenses by understanding the stakeholders. Having been in the urban communities now for over 25 years in partnerships with Andre, partnerships with Eva Longoria and Magic Johnson, I understand the three most important issues and challenges that these families have. That’s access to great education, access to great preventative health care, and a safe, secure, nurturing home environment. If we can create a pride in rentership by enriching these communities with those three services at no cost, you’d actually change the trajectory of your revenue stream. We could drive profitability, not by increasing rents, but by reducing expenses.

Katherine Klein: What are the expenses that are reduced for you as a developer if you do those things?

Bobby Turner: As an owner of workforce housing, one would recognize the biggest cost of owning and operating workforce housing is vacancy. No one comes home after working their two or three minimum wage jobs to their tenement-style home and says, “I really love living here.” There is no pride, no affiliation, no loyalty to your landlord. Therefore, what you see every 24 months in workforce housing is 100% vacancy. If you could enrich the community by providing free services, free health care, free education and tutoring, free law enforcement, you could actually change the relationship that you have with that tenant. And if they were to stay longer, without paying more rent, you can drive profit margins by 10% to 20% by eliminating the vacancy and cost that is associated with rapid turnover. We do that by partnering with our schools. We’ll build a great school in a neighborhood where there is affordable housing. We’ll subsidize housing for teachers, which is great for the schools and teachers. The currency that the teachers will pay us is every school night of every school day we have some common area that we turn into a mentoring lounge, that one of the five teachers for whom we’ve subsidized housing is staffing that mentoring lounge for the benefit of our children.

So, while our parents may be spending too much in rent already, they could ill-afford a tutor, yet by living in the Turner Multifamily Impact Fund property, they get free tutoring. We do that with health care and we do that with law enforcement as well. We’ve bought two properties so far, one in Prince George’s County, Maryland, and one in Lauderdale Lakes, Florida. We’re in contract to buy a third in Austin, Texas right now.

Katherine Klein: How do you make the decision on where to locate, and what made those two properties particularly good places to start?

Bobby Turner: We like to focus on markets that are defined by the four Ds of urban revitalization. It’s got to be a densely populated community. It’s got to be a diversely populated community because that’s where the mismatch is. There’s got to be demand. We’re not interested in building charter schools in a high-performing public school district. We’re not interested in preserving affordable housing where there is no need for it. So again, density, diversity and demand — and also disruptive. We’re not interested in investing in marketplaces where we can only invest $1 million or $10 million. We want a scale where we’re building ten schools, we’re buying 5,000 units of affordable housing, so it’s sustainable and it’s scalable and, more importantly, so we can lift and right the listing ship for tens of thousands of families that don’t have great options.

Katherine Klein: What are the success indicators that tell you that this model is working?

Bobby Turner: I have to focus primarily on my financial indicators because how I define social impact is not by what it is, but rather by what it’s not. Social impact is not philanthropy. It’s not government, and it’s not a business model that believes one should sacrifice yields in return for a social metric. For me to raise money, to truly scale the impact I want to have, I’ve got to generate consistent risk-adjusted returns without sacrificing yields. No. 1, every day I go to the battle line making sure I’m making money for my investors. No. 2 is, I’m having a meaningful impact on the communities in which I’m investing. In many instances, it’s easy to define. We know that our impact is the number of school seats that we build, because the number of school seats that we build, we fill with a child, and that for many kids we’re changing the trajectory for their lives. When you buy and preserve and enrich workforce housing, and the kids that we’re teaching during the day in our schools, as they go home to these communities and they get better sleep, it’s a safer environment, we know that we’re complementing and tackling the whole solution. When we see that by enriching the communities with health care, education and security, when we see that the average duration of a lease goes from 24 months to 36 months, we know for a fact that we’ve created one. When we see the number of incidences, transgressions, 911 calls drop from 75 to 80 a month down to 75 a year, that’s when you know you’re have an impact on the community. And the culture of the community, where again, you’re enriching and providing hope, and re-instilling hope into the community.

Katherine Klein: You’ve talked about the risks, as one gets into this space, of arrogance and skepticism — arrogance on the part of the investors who think they know the solutions, and skepticism on the part of the community. How have you avoided that when it comes to workforce housing?

Bobby Turner: The biggest risk of being successful in social impact is not recognizing the huge gap between arrogance and distrust — arrogance by shareholders who believe because we have the money we know what’s right for the community, and distrust from the stakeholders who live and breathe these problems every day and who assume we’re there just to make money. The only way to truly conquer that and bridge that gap is by making sure your shareholders are also stakeholders. When you look at the company we’re building, not only are we 100% fanatical about what we’re doing, we’re also 70% diverse. It’s not only gender and ethnicity and religion, it’s also vocation. In our school fund, we have recovering Teach For America teachers. We have recovering public school superintendents. We are of the community, we understand the risks, and when we sit across the table from those stakeholders, they recognize that the shareholders are also the stakeholders. I also can help bridge the gap by partnering with someone like an Andre Agassi or an Eva Longoria, who are ambassadors of great will that can raise the awareness. They are truly philanthropists at heart, and having their seal of approval helps mitigate the concern or the distrust from the community

Katherine Klein: Let’s take it back to your company at Turner Impact Capital. What’s it like to work there?

Bobby Turner: It’s awesome. You’re surrounded by a group of people that are 70% diverse. It means they’re not guys. It means they’re not Americans. It means they’re not one religion, not one gender, not one sexual orientation, not one of anything. So, when we sit around a table, we understand the nuances of every stakeholder in America. I learn every day. The reality is most people dream while they’re asleep. It’s easy for people to dream while they’re asleep. It’s those that have the courage to dream while they’re awake who will change the world. We have populated Turner Impact with a group of people, recovering professionals from all aspects of life, who have a shared courage to dream while they’re awake and not take no for an answer. So, I don’t go to work any longer. I go to play every day of my life.