The Mainstream Cometh
ClearlySo CEO Rod Schwartz argues that all the signs are here to say that 2017 will be year that impact investing fully goes mainstream.
I could just as easily have called this blog “having your cake and eating it”, or several other equally silly titles. But I do think something very significant happened the week before Christmas 2016 in the impact investment sector, and I hoped some catchy title would partly signal the significance. On 19 December, ClearlySo colleagues noticed a piece in the New York Times which heralded the coming of a new impact fund called RISE. The fund will be raised and managed by TPG, a large US-based private equity firm, and hopes to raise a $2 billion impact investment fund, which aims to achieve high returns as well as high impact. The newspaper piece noted that the “glitterati” of the philanthropy world would be involved, including Bono, Jeff Skoll, Richard Branson, Reid Hoffman, Mo Ibrahim, and Pierre Omidyar. On 23 December, we learned that Palatine Private Equity, a Manchester-based PE firm, had done a first closing of its own impact investment fund on £50 million. We could not disclose this, but yesterday, Real Deals announced the first close of this fund. To our knowledge this is the first UK mainstream PE firm to have decided, of its own accord, to raise and manage an impact investment fund which seeks both high financial returns and high impact. (In the interest of full disclosure ClearlySo advised Palatine and I am expecting to join its Advisory Board.) Both developments are very significant. $2 billion is an eye-catching figure and when you consider that so many well-known and wealthy individuals are behind the fund, it’s bound to capture people’s attention. TPG as a PE firm has built a great franchise but has not historically been known for its involvement in impact. William McGlashan, the fund manager at TPG who will be responsible for the fund, has become enamoured by impact investing as a result of some reported investing experiences of his in Myanmar. That an investor with, according to reports, a successful track record, has jumped into impact investing is of course significant and exciting for the sector. TPG’s past, with respect impact, is not overly relevant to us — the key is that they are bringing valuable expertise into the sector and facilitating the entry of $2 billion that would have gone elsewhere. Palatine Private Equity is also reported to have a good investment track record, as well as some previous success with regard to its application of ESG criteria to private equity investing. The firm has routinely won awards for its metrics which bring environmental, social and governance criteria into the private equity arena. It is also notable that this fund has, in contrast to the TPG fund, done a first round close and is therefore open for investing. For us at ClearlySo this is enormously important. It signals the interest by conventional PE/VC fund managers in impact investing and this simply would not happen if their Limited Partners (LPs) were not interested in investing. We think that the pressure from LPs, especially from those in Holland, Nordic Europe, and California, is adding to the momentum for impact to be assessed and evaluated in conventional private equity portfolios. This is one of the reasons that on 8 December 2016, ClearlySo launched ClearlySo ATLAS, a tool to help venture capital fund managers to efficiently assess the impact of the entire portfolios. The entry of Palatine and TPG into impact investing also supports a long-standing contention of ours, that high returns and high impact can indeed go hand in hand. ClearlySo is of the firm belief that there is no “seesaw” in impact investing. In fact, we believe that the two are positively correlated. I confidently expect more announcements like this during the course of 2017 – there are rumours, for example, that a UK bank is considering high return/high impact vehicles, and that is one of just many organisations we aware of at ClearlySo. This is monumentally important for the sector as we believe the main challenge has been a lack of capital and not, as many observers contend, a lack of deal flow. Quality deal flow is plentiful and the entry of these organisations into the space will enable far more high impact organisations to secure the funding they need and a broader range of investors to gain access to the high return/high impact investments which they seek. There are exciting times ahead in the impact investment sector. This will be the year when mainstream investors enter in size, which will have a profound and beneficial effect on impact investment and on society. Image source: Wikipedia Commons