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Impact investing with market rate returns

by Rodney Schwartz

One of the most important events in the UK and European impact investment industry has passed almost unnoticed. For the first-time ever a successful mainstream private equity firm has launched an impact fund which seeks to offer market returns by investing in companies that generate high impact. The firm is Manchester-based Palatine Private Equity, and it has recently announced a final close on its “hard cap” of £100 million. This follows a nearly invisible piece which reported a first close last December on £54 million.

There are several reasons for this having been relatively unnoticed. First, this fund was not corner-stoned or invested in by Big Society Capital (BSC) and therefore has not received the sort of attention that BSC-backed funds often generate. Secondly, Palatine are relatively conservative regarding fund marketing via the media–we have noted that other organisations are somewhat less prudent. Finally, the team at Palatine, despite their historically strong investment and ESG track-record, strike us as relatively modest people. Perhaps it’s the difference between firms which are based in London and those, like Palatine, which are predominantly based in Manchester or the North West generally.

Before I continue, I should make clear that we have the possibility of bias concerning Palatine. I serve in a personal capacity on their Advisory Board and we are proud to say that we assisted them with advisory work in 2016 during the early stages of their fund structuring and marketing efforts. The firm approached us to conduct a “market-scoping” exercise on attractive sectors within impact investment. My ClearlySo colleagues conducted an analysis of 11 sectors, and identified attractive investment opportunities suitable for their investment strategy within them. Given our position in the market and visibility on almost all impact investment opportunities available, we are increasingly carrying out this type of work for a number of impact funds, both generalist and sector/geography specific fund managers.  Readers are therefore free to discount some of what I have said above or below.

Palatine’s new fund, led by Beth Houghton is not dissimilar in broad concept to the much-heralded RISE fund launched by TPG of the USA. That fund is set to be $2 billion and is chock-full of the impact glitterati (Bono, Richard Branson, Jeff Skoll, etc.).  Furthermore, whilst the TPG fund has a global remit, Palatine’s impact fund will focus on the UK market.

We do not feel it is much of an exaggeration to say that this is perhaps one of the most important events in impact investment this year. It signals that in a decisive way impact is now something that mainstream private equity and venture capital investors care about. The encouraging response we have received to the launch of ClearlySo ATLAS, our impact assessment tool, is also evidence of this trend.

Recently Barclays also announced the launch of its impact fund product, which further amplifies the “mainstreaming” of impact investing. Nevertheless, observers should note that the Barclays fund was only launched in mid-September and follows years of pre-launch meetings. Nevertheless, it is a very encouraging development and long overdue, as large UK financial institutions have been woefully behind in the impact investment arena.  M+G, the subsidiary of Prudential, has also launched an impact debt fund.

From the experience we have built up over the years at ClearlySo, one thing is for sure, these financial institutions tend to behave like sheep, or lemmings.  I confidently predict that will see a lot more of such announcements in the months ahead, and we look forward to continuing to play our part in bringing impact opportunities to mainstream financial institutions.

This blog was first published on Third Sector.