Impact investing private equity funds

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impact investing private equity funds

Pressure is growing on fund managers to incorporate envi- ronmental and social issues in their investment decisions. By Kiki Yang, Usman Akhtar, Johanne Dessard. By working closely with management and supporting a business with capital, expertise and networks, investors have demonstrated that they can drive improved. As of publication, the top five impact investing firms on the basis of assets under management are Vital Capital Fund, Triodos Investment Management, The. AUTOMATIC FREE FOREX EXPERT ADVISORS Dropped that share knowledge a far more respectable. The script for installing platform is from another it is. Adobe itself Gabriele Mondada 4 4.

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Global Fixed Income Bulletin. Global Multi-Asset Viewpoint. Market Pulse. Slimmon's TAKE. Tales From the Emerging World. Having more capital earmarked for positive impact investments is expected to transform the capital markets by helping connect investors with companies that have a positive impact, potentially reducing the cost of capital for these companies, and sending a signal to the market there is demand for impact investments, which could help encourage more impact businesses to be created.

The bigger funds are also cutting bigger deals. The smaller impact specialists that previously dominated the market had less funds at their disposal and made smaller deals as a result. Another market observer told Environmental Finance that this presents a challenge for the impact giants, as it would be impractical for them to disburse billions of dollars by making small investments, and there are limited large impact investments available.

However, he questioned whether there was enough deal pipeline for them to be able to disburse all of the funds to credible impact investments. One challenge for the private equity giants is that, unlike the impact investing specialists, other funds may be investing in activities that run contrary to the beliefs of the impact funds. This can create scepticism about the motives of the private equity giants, particularly as private equity does not always have the best reputation when it comes to creating environmental and social goods.

For example, there is room for improvement in the way these private equity giants incentivise staff and whether this leads them to prioritise positive impact and not just financial returns, said the unidentified source. Asked whether he thinks managers like KKR are primarily motivated by financial or impact concerns, the source says: "People saw it as a way to launch a new fund and get some more investors, it's the name to put a halo around the brand.

He says impact funds from the large private equity players do not provide 'additionality', as judged by whether the investments they make would not have happened otherwise: "I don't think it meets that bar, because I think they're first and foremost [looking to] make money off their market-rate investments. I think that's an example of additionality.

The Principles were launched in "to bring greater transparency, credibility, and discipline to the impact investing market, [and to] address concerns about 'impact-washing'". Diane Damskey, head of the secretariat of the Operating Principles for Impact Management, said in written comments: "The primary role of the secretariat is to oversee, administer and manage the promotion, development and adoption of the Impact Principles.

The secretariat does not provide critiques about individual signatories or comparisons between signatories. By adopting the Impact Principles, impact investors can better demonstrate the rigour of their impact management strategies—which helps bring greater transparency, discipline and credibility to the market. This will make it easier for the public to assess differences and compare across investors and investments. The market is still in the early stages here. Delilah Rothenberg, co-founder and executive director of the Predistribution Initiative, which was launched in with the aim to promote workers and communities in investment structures, tells Environmental Finance that in her previous work in private markets fund management she noticed that "a lot of the mega fund managers had practices that were undermining their stated ESG and impact goals".

Private equity in general — and impact investors in particular — should better link executive remuneration with the financial success of portfolio company employees, she said. And I think that is probably the case for most people who work in the industry in these [impact] roles. These firms are well intentioned.

Impact investing private equity funds sono ipo impact investing private equity funds


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The investment came first, the impact came later. Still, the impact is real and that sequence can be an effective way for large financial-services corporations to create positive impact in the world. Call it opportunistic impact: take an existing portfolio, look at it through an impact investing lens and find ways to make more money by taking actions that improve the planet.

That was the approach taken by Ken Mehlman, the former Republican National Committee chair and George W Bush campaign manager, when he stepped away from politics to lead external affairs and impact initiatives for KKR. Mehlman has a broad remit at KKR. Any investment, made by any fund for any reason, is in principle eligible for his ministrations.

But things seem to be going well. The creation of a dedicated fund at KKR makes sense for at least two reasons. For one, impact investments tend by their nature to be on the smaller side, at least by KKR standards. Often the distinction can be hard to discern with the naked eye, since impact investors rarely invest all of their money in impact strategies; much of the rest will go to big hedge funds and private equity shops.

Assume, for the sake of argument, that the big thesis behind impact investing is correct — that investing in companies making the world a better place is a great way to get the kind of returns that KKR and its ilk are constantly searching for. Let us assume, in other words, that doing well financially is aligned with doing good socially. If you grant that assumption — and senior management across the private-equity industry seems to be well-disposed towards it — then what do you do next?

The answers vary greatly, both in terms of short-term tactics and in terms of long-term ambition. The approach taken by Goldman and KKR is the simplest and often the most obviously effective. Once you have made an investment, various professionals in your company have the opportunity to propose actions and interventions that will make the asset more valuable.

When those actions make financial sense, they get implemented, whichever group they come from. An impact team working in such a manner by definition creates social impact because all they look for is ways to do that; but they also pretty much by definition create financial profits, because their proposals will not be adopted unless they do so.

This approach, however, while effective, is also pretty weak. It largely removes the impact investment team from the actual investment decisions where capital is deployed, thereby making it much harder to invest in mission-driven founders or companies. More broadly, if an investment firm genuinely believes in the impact investing thesis, then it should use that thesis to guide its investments; if they are not doing so, then surely they are leaving money on the table.

It too is run by an ex-politician, in this case the Democratic former Massachusetts governor Deval Patrick. His Republican predecessor Mitt Romney also famously worked for Bain. The big difference between Bain and KKR is not in their funds but rather in everything else they invest in. Warren Valdmanis, a veteran Bain managing director who is now at the Double Impact fund, likes to say that everything Bain invests in is an impact investment.

Double Impact, then, is in many ways a proof of concept; a small-scale example of what Valdmanis hopes that Bain will become globally. Most importantly, at Double Impact, Bain commits to measuring its social impact; its deliverables are not only financial. The idea is one of evolution: that private equity started out as pure financial engineering and then evolved to encompass a broad suite of operational and strategic capabilities. Part of that operational expertise necessarily involves setting goals for portfolio companies and managing to those goals, whether they are sales or gross margin or customer satisfaction.

Meanwhile, because the SDGs represent very long-term secular trends rather than cyclical sectors, which can go in and out of fashion, the hope is that impact investments are less likely to be blindsided by exogenous macroeconomic shocks. If we can show that you can make as good or better returns by investing this way, drawing capital into this is going to be very easy. On some level, however, that is just not possible. Double Impact is an investor in a fitness chain called Impact Fitness, for instance , whose model is based more on improving health outcomes than it is on getting people to sign up for memberships they never use.

That is great, but those less enlightened, non-mission-driven fitness chains are not going away and at some multiple of cash flows they might well become attractive to Bain or some other buyout shop. Not every company can be an impact investment, especially not if it deals in, say, tobacco or gambling or guns or coal. And it is just not realistic to expect an industry as opportunistic as private equity to confine itself to a small subset of its existing opportunity space.

Which is where the TPG approach comes in. The Rise Fund is big enough to attract institutional attention. It is also big enough to be created from scratch, rather than being grown out of an existing impact or environmental, social and governance programme. The idea is controversial in the impact world, where there is a lot of resistance to the concept of trying to compare fundamentally incommensurate SDGs like nutrition versus infrastructure or gender equality versus mountain ecosystems.

Who is to say which impact is greater? Well, the Rise Fund would love to be able to say exactly that, and, moreover, would love to be able to set a minimum impact hurdle rate for its investments alongside a similar financial goal. Need help signing in? Issues with signing in? Click here. Don't have an account? Register now.

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