Education Tech | November 29, 2018

What we know about Turner Impact Capital’s school, housing and health funds

David Bank
ImpactAlpha Editor

David Bank

Bobby Turner has had a busy couple of months. His Turner Impact Capital christened a charter school in Washington, D.C., opened several new health clinics in Florida, and acquired new apartment buildings for affordable workforce housing in San Antonio, Houston, Atlanta and Las Vegas.

Oh, and the peripatetic Turner secured investor commitments that should push the firm’s assets above $1 billion across five funds.

“What I like is that they’re really doing it,” investor Liesel Pritzer Simmons of Blue Haven Initiative said about Turner’s firm at last month’s SOCAP conference. “There’s a lot of talk and then there are folks who also move money, move it quickly, and do it with a lot of integrity and impact.”

Turner has been on an extended journey of self-redemption in the five years since he left Canyon Partners, the $25 billion hedge fund he had helped build with other veterans of junk bond king Michael Milken’s dealmaking shop at Drexel Burnham Lambert in the 1980s.

“I had become so self-loathing,” Turner said in an interview with ImpactAlpha. “I developed a moral discomfort. My sole measure of success was how much money I had. For us to win, someone else had to lose.”

Now, Turner considers himself an “evolved capitalist” and is trying to turn market forces toward what he calls “the three-legged stool of social injustice” – education, housing and health care.

Star power

He has teamed up with tennis star Andre Agassi on two Turner-Agassi charter school funds that raised more than a half-billion dollars and have built 87 schools serving 45,000 students. (He’ll also tell you the funds are delivering to investors returns of 10%, net of fees.) The newest school, in southeast Washington, D.C., is operated by Rocketship Education and will serve 760 elementary school students at full capacity.

He’s enlisted actress Eva Longoria and basketball star Chris Paul as “ambassadors” (as well as investors) in two Turner Multifamily Impact Funds that acquire and preserve urban rental housing for families earning less than an area’s median income. Typical tenants are teachers, police officers, health and service workers and others who don’t qualify for subsidized housing, but are quickly being priced out of housing markets near where they work.

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He says the “old Bobby Turner” would have revamped the properties and jacked up the rents. The new Bobby Turner tries to reduce expenses by increasing tenant satisfaction, reducing turnover and improving quality-of-life with tutoring, mentoring, job fairs and farmers’ markets. Yields are uncorrelated from the broader market because demand is not correlated to stock market trends, unlike high-end condos. “That creates alpha and diversity,” Turner says. The fund claims to have preserved 6,200 workforce housing units in five states.

The Turner Healthcare Facilities Fund has opened six health clinics in Florida, including its first newly built facility, in Tampa.

Contrarian view

Private-equity investments in essential social services in disadvantaged neighborhoods might seem tailor-made for the new Opportunity Zone tax breaks that were included in last year’s U.S. tax-cut bill. And many if not most of the firm’s investments are in low-income census tracts that have been designated as Opportunity Zones under the legislation. But Turner is a skeptic and says all the hoopla around the zones may be “much ado about nothing.”

For starters, he says the most important success factor is the ability to build teams that can intelligently invest the money and create opportunities not only for investors, but for local residents. “Just because you’re going to waive capital gains on me doesn’t make it a good investment,” Turner says. “It’s the tail wagging the dog.”

In addition, he says, the provisions of the bill will require many investors to pay their deferred taxes in 2026, meaning they may need cash to cover their tax liabilities. And finally, he says, many of his investors are university or foundation endowments, which don’t pay capital gains tax in the first place and thus don’t need the break.

“There is a tsunami of interest of investors to find market-rate solutions,” he says. “Where the bottleneck is today is the dearth of investment managers who can deliver sound financial and sound impact.”

Private capital, public education

The charter school funds, not surprisingly, have roused opposition from teachers’ unions and others who argue the alternative public schools drain funds from district schools without significantly boosting student achievement. Turner, and Agassi, insist that by working with only the most proven charter-school operators, they are delivering high-quality and still free public education to students who otherwise would lack educational opportunities (see, “Private financing for public education.”)

He and Agassi were repeatedly turned away when they were raising the funds, he says. Many billionaire investors continue to be skeptical of social impact funds, preferring to maximize returns on the one hand and contribute via philanthropy on the other. The public pension funds were attracted to the returns, but politically unable to back charter-school financing. At one point, he says, China Investment Corp, a huge sovereign wealth fund, offered to take the entire allocation.

In the meeting, Agassi asked, “Why does the government of China want to invest in a private-equity real estate fund focused on the future of education in America?” Turner recounted in an on-stage interview at SOCAP.

As Turner tells it, the representative replied to Agassi, “Your country is indebted to my country to the tune of $2 trillion. None of us will be alive to see that debt repaid. Therefore, we, the government of China have to rely on the next generation of Americans to grow your economy out of the debt you owe us. And you are failing to educate them. So we have to hedge our bets.”

“How’s that for a piece of humble pie?” Agassi asked in the interview.


Turner acknowledges that “some people are using social impact as a way to aggregate assets, and some are using social impact to greenwash.” He says the two words that describe social impact investing are “arrogance” and “distrust.”

“Arrogance from the people with capital who think they know how to solve everything,” he explains. “And distrust from people in the community who think capital is there just to make a buck.”

He says the way to mitigate such risks is to bring in people “of the community, from the community, so you can identify and mitigate the social injustice.” He says 85% of Turner Impact Capital’s 164 employees are diverse, non-white men, and 45% are women.

“There are a lot of people rooting for our failure, who don’t want to believe that doing well and doing good can play well in the sandbox,” he says. “If we are to fail, it will set back the social impact movement for a very long time.”