Private equity fund managers looking for value-creation opportunities are increasingly finding their way to impact themes like climate-resilient and sustainable agriculture, employee engagement and ownership, and the growing market for goods and services for low-income countries and communities.
But self-identified and committed impact investors remain better positioned to pull such levers and deliver the “alpha in impact,” Tideline’s Ben Thornley argued on this week’s Agents of Impact Call. More than 300 Agents of Impact signed up to dig deeper into Tideline’s report, prepared with Impact Capital Managers, “New Frontiers in Value Creation.”
The report featured more than a dozen case studies, including both impact funds within asset-management giants like Bain Capital and Stockholm-based EQT and pure-play impact investors like S2G Ventures and Leapfrog Investments. All are helping their portfolio companies scale their impact using one or more levers of influence, including market positioning, product development and access to capital.
“That does signal to us that this is a set of levers that can be more broadly applied,” Thornley said. Impact investors are better positioned, he said, “because they come with a certain intention, they come with certain expertise, stakeholder focus, they come with data, and networks that are unique, and therefore they’re uniquely able to deliver that kind of impact value creation.”
The report provides a common language around such strategies, as well as a framework of value-creation levers, sources and modalities of impact value-creation and new terms, such as “financial materiality of impact,” or FMI. Impact Capital Managers, an association of more than 120 managers representing more than $100 billion in assets, represents fund managers on the “market-rate” (or better) end of the impact investing spectrum.
“There’s a special toolkit that impact investors and fund managers can use to squeeze extra impact that is financially material out of those investments,” said Impact Capital Managers’ Marieke Spence.
Launch velocity
S2G Ventures, part of Walmart heir Lucas Walton’s Builders Vision, didn’t just back Clear Frontier, a Nebraska-based farmland fund that helps farmers transition to sustainable farming practices. It launched the business.
“We decided, ‘Let’s go start a farmland business,’” S2G’s Aaron Rudberg shared on the call. The $2 billion venture and growth equity firm, which recently added private credit and project finance capabilities, had relationships with major consumer packaged goods distributors, many of which had acquired organic brands to meet consumer demand.
“We said, ‘What are your problems?’” he recounted. Sourcing organic grains for those new brands was proving an obstacle to growth of the market. “And foolishly we said, ‘Well, what if we solve that problem for you?’”
S2G secured an offtake agreement to secure demand for organic grains. The team spent nine months working through possible business models before searching for a CEO. Justin Bruch, a fifth-generation Iowa farmer, had for a decade managed over 150,000 acres in Ukraine, and had a master’s degree in agronomy from Iowa State, and had built out a US farmland portfolio that was sold to Bill Gates’ Cascade Investments – and had just converted part of his own farm to organic.
“Within 10 minutes, my partner and I look at each other and we say, ‘Holy cow, this is our guy,’” Rudberg said. S2G provided operating capital, warehoused the first few farmland acquisitions, became a limited partners and introduced the Clear Frontier to other investors. Clear Frontier has raised more than $200 million to acquire additional acreage.
Retention and recruitment
Bain Capital’s Double Impact fund, which closed its $390 million first fund in 2017, and an $800 million second fund in 2020, sees a clear correlation between impact initiatives and value-creation.
It pulled the “growth” lever to help Excelsia Injury Care grow geographically to help more low-income and under-insured patients benefit from help in finding and funding medical care after auto accidents and workplace injuries.
It also helped Excelsia boost its employee engagement and retention; skilled and reliable workers are a key growth factor in the healthcare industry.
“This is a tough job. This is interacting with patients who are under a lot of stress. A lot of the hourly workers are really evaluating trade offs of staying in healthcare,” says Bain Capital’s Larissa Quinn. The value-creation team asked the company what it would take to get all employees to a living wage, and then to map out a plan to get there.
Working with third-party services, the company has established employee relief funds for emergency expenses, as well as a payroll-smoothing option to give workers access to their earned wages between paychecks, “everything we can do to truly make Excelsia a great place to work and a place that retains and can recruit easily the best talent in the markets,” Quinn said.
“Like many other impact initiatives, we see this as good business. We are fighting for talent every day,” she said. “Happy employees, engaged employees who are well trained and have been there for a long time, make a huge difference in the patient experience. One of the things that we really strive to do is create an incredibly good patient experience with high (net promoter) scores.”
The demand for fund managers who can pull such impact levers exceeds the supply, Rudberg said. On a recent fundraising swing, “What we heard was there just are not enough proven managers companies out there that have scale and have shown that they can drive impact,” he said.
“I think what’s exciting is I’m not sure we met any – now maybe this is self-selection – but we didn’t meet many groups that weren’t looking at these themes.”
Agents of impact
As always, the chat was buzzing with check-ins and introductions from Agents of Impact across the country and globe, who shared their own value-creation insights and peppered the speakers with questions.
Ellen Frank-Miller chimed in from the Workforce & Organizational Research Center in Chicago… Avesta Fund’s Srikant Vasan called in from Denver… David Harlley of Africa-based Third Way Capital joined… Matt Camp with Peer Venture Advisors said hello from outside of Boston… a trio of Toronto based attendees included Jaiveer Gandhi, from Boann Social Impact, Andrew Newton of Amplify Capital and Alexa Nguyen from Rally Assets…
The call was international: Bereng Seeiso of Oryx Impact called in from Lesotho… Lauren Burnhill was in Portugal… Joining from Spain, was Joan Fulton representing the Swiss-based Ocean Assets Institute…
The California contingent, as always, was strong. Rachel Mavorthalasitis of Reach&Root Partners checked in from San Diego…James Bair of Swiss-registered Baraka Impact Finance joined from San Francisco… Also in SF was Mike Hokenson of Community Investment Management… and Diana Yang of BlackRock Impact Opportunities and Tamay Kiper from Beach Point Capital joined from Los Angeles.
Ellen Remmer from Invest for Better called in from Boston… Joining from NYC was Matt Raimondi of Beyond Capital Ventures… Johann Wong, from JouleWatt in Washington DC kept the conversation going during the happy hour… Jeff Rosen from the Tufts University Certificate in Impact Investing chimed in…
David Balkcom with WealthBridge Financial Group joined from NYC… Dmitriy Ioselevich from 17 Communications, dialed in from Vermont… Caitlin Morelli from Worthmore called in from NYC… Amaris White of Morgan, Lewis & Bockius LLP chimed in from NYC… Niels Andersen with JPES Partners, joined from New York’s Hudson Valley… and Harshita Mira Venkatesh from Avesta Fund represented Denver.
