ImpactAlpha, January 21 – Hedge fund Two Sigma launched its nine-figure impact investing initiative from its own balance sheet to prove the correlation between good jobs and business value. The firm’s first investment is in Penn Foster, which offers low-cost degrees and certificates in high-demand fields like healthcare, veterinary sciences and early childhood education.
“A happy, engaged workforce is good for companies. That statement isn’t debatable,” Two Sigma Impact’s Warren Valdmanis told ImpactAlpha.
Two Sigma co-invested with Boston-based private equity firm BayPine, which together took a controlling stake in Penn Foster to improve its data science capabilities and “future-proof” the company in the face of technology change and the pandemic, Valdmanis says.
The deal is also the first for BayPine, an ESG-based investor focused on “digital transformation.” BayPine’s Anjan Mukherjee said unlocking Penn Foster’s “significant untapped digital potential” would yield benefits for the company and its stakeholders.
The two firms’ investment gives existing investor Bain Capital Double Impact an exit. Valdmanis led the 2018 investment in Penn Foster by Bain Capital’s impact group, which he left last year.
Good jobs
Two Sigma, a $58 billion hedge fund, spotted an opportunity to use its data-centric approach to build the case for the importance of “S” factors in environmental, social and governance-based, or ESG, investing.
“Impact investing hasn’t completely nailed the relationship between social factors and value,” said Valdmanis.
Two Sigma’s starting point: good jobs. Valdmanis said the firm aims to understand “the levers that build better jobs, and how that drives long-term value for companies, so we can develop repeatable playbooks” (see, “There’s a new impact sheriff in town: activist hedge funds“).
A key focus for the firm will be figuring out how workers’ perception of their income, work environments and career opportunities can be captured and quantified, alongside established criteria, like living wages and equitable pay.
Its workforce investment approach will focus on two types of companies: educators and training institutions that are preparing and upskilling the workforce and employers where human capital is crucial to their success. Penn Foster fits because it targets the underserved need for low-cost vocational training. The company started nearly 130 years ago to address a skills gap in coal mining and now offers low-cost, pay-as-you-go online skills training, certification and degree programs.
“We don’t have enough electricians or plumbers or pharmacy and veterinary technicians, yet the whole education system is designed to get more people into college degree programs,” said Valdmanis. “Helping people get certified and skilled for middle income jobs is a big gap in the education landscape.”
Impact exit
Of its investment in and exit from Penn Foster, Bain Capital Double Impact’s Iain Ware provided the following statement:
“This highly-successful impact and financial outcome is another result of Bain Capital Double Impact’s active partnership model. It was a true partnership with Penn Foster’s outstanding leadership team, and we are excited that the company and its new owners have agreed to maintain the impact initiatives implemented in recent years to continue supporting learners as they build skills and pursue new careers.”
