Y Analytics: The Rise Fund’s new impact measurement business gets a mixed welcome



ImpactAlpha, January 24 – How to measure the social impact of investments has long been a hot topic among impact investing pioneers. A big, brash newcomer just raised the stakes.

TPG Growth, which is raising $3.5 billion for its second Rise Fund following its $2 billion first fund, is spinning out its impact measurement arm into “Y Analytics,” a separate business that will serve other investors as well.

Most of the industry’s public statements welcomed the Rise Fund’s efforts to elevate the public profile of impact measurement at a time when the entrance of mainstream private equity players has fueled concerns about marketing hype and “impact-washing.” The Omidyar Network, for example, tweeted, “We’re supportive of the development of robust tools to help measure environmental and social impact.”

Privately, some among impact investing’s old guard are grumbling that the Rise Fund has staked out an approach independent of emerging industry norms. They suggest the Rise Fund’s “impact multiple of money” calculation is ripe for manipulation and grouse the method may cherry-pick positive outcomes without accounting for possible negative consequences. Some fault the methodology for relying more on academic studies than feedback from actual customers and other stakeholders.

The most salient critique may be that, at least for now, TPG Growth is measuring the social impact only of the “impact” investments it makes through the Rise Fund, not of its entire $13.2 billion in assets, nor parent TPG’s more than $70 billion.

The Rise Fund’s Bill McGlashan has said that TPG Growth’s methods for underwriting “positive externalities” may in the end be the firm’s biggest impact of all. In a statement, he said Y Analytics would help provide a common language for positive impact, “narrowing the gap to reach the Sustainable Development Goals and advancing progress towards sustainability and economic inclusion.”

Rise Fund’s Impact Multiple of Money: A conversation with TPG’s Bill McGlashan

Private-equity watch

The Rise Fund is staking out its impact measurement approach as the billion-dollar private-equity fundraising sweepstakes heat up. The Rise Fund enlisted U2’s Bono, a co-founder and investor, to help launch the new company at the World Economic Forum’s annual meeting in Davos, Switzerland.

“To persuade the biggest institutional investors to commit their funds to tackling some of the world’s most urgent challenges we need to be as confident about the impact returns as we are about the financial returns,” Bono said.

At the least, the big private-equity entrants will be expected to explain their approaches to impact measurement. KKR, which is yet to close its planned $1 billion “global impact” fund, says it will require portfolio companies to be aligned with specific UN Sustainable Development Goals and report specific impact outcomes. Bain Capital’s $390 million Double Impact fund, launched in 2017, has pledged to report under the so-called GIIRS rating standards developed by the nonprofit B Lab. Carlyle Group, Blackstone, Apollo Global Management and other big firms considering moves into impact investing will now be on the hook for impact measurement.

Swiss investment firm Partners Group is raising its $1 billion equity and debt PG Life fund targeting the Sustainable Development Goals. The firm will score each investment on a five-point scale based on the five dimensions of impact identified by the Impact Management Project, a network of industry standards bodies.

Some high-profile “world positive” funds, such as Obvious Ventures’ two funds and Steve Case’s Rise of the Rest fund, have eschewed impact measurement as too big a burden on entrepreneurs.

The Impact Alpha: Big new private-equity funds are on the hook to deliver impact outperformance

Y Analytics, launched in partnership with Bridgespan and KPMG, will be based in Washington D.C. and led by Maryanne Hancock, the former McKinsey partner who currently leads TPG’s Rise Labs. In a statement, Y Analytics said it aims to link investors with academic research to help them “evaluate impact at the front-end of the capital allocation process and manage impact rigorously thereafter.”

The Rise Fund lined up a Who’s Who of advisors and supporters to bolster its bona fides. The editorial advisory board includes Judith Rodin, former president of Rockefeller Foundation; Haas School of Business’ Laura Tyson; and University of Chicago president Robert Zimmer. It also includes Helene Gayle, president of the Chicago Community Trust and Lenny Mendonca, California’s new chief economic and business advisor. Institutional partners include World Resources Institute and the Abdul Latif Jameel Poverty Action Lab, known for putting social policy through rigorous scientific tests.

Impact multiple of money

The Big Four accounting firms have GAAP or IFRS; impact investment practitioners are similarly in search of a common method of impact accounting.

As outlined in Harvard Business Review last month, the Rise Fund’s “impact multiple of money” methodology attempts to put a dollar value on the social impact expected from a company’s business activity based on evidence-based financial proxies of impact. For its roughly $100 million investment in education technology firm EverFi, for example, the Rise Fund estimated it could deliver more than $500 million in the form of alcohol-related deaths reduced, sexual assaults averted and student debt burdens lowered through the use of the firm’s curriculum and software. That let’s Rise assign the EverFi investment an expected a 5X “impact multiple of money.”

Can we put a dollar value on impact? Reactions to the Rise Fund’s ‘impact multiple of money’

The calculations, based on assumptions derived from academic research, include a raft of qualifiers, discounts and multipliers. For example, Rise relied on a 2010 randomized control trial of a separate program that showed alcohol-abuse education could reduce alcohol-related incidents by 11%. Applied to EverFi’s user base, the study forecast that 36 lives could be saved over a five-year period. At an estimated value of $5.4 million per life saved, EverFi’s AlcoholEdu program could expect to generate “social value” of at least $194 million, the authors wrote.

Kelly McCarthy, who leads impact measurement efforts at the Global Impact Investing Network, says she’s encouraged to see examples of investors working to improve the rigor of their impact measurement and management practice and being transparent about their experience.

“As impact measurement and management advances, we will need to be cautious about attributing dollar values to impact and creating a fixation on this as a key indicator of performance,” McCarthy told ImpactAlpha in an email exchange. “Doing so can produce potentially distorted incentives for pursuing investment.”

Rise Fund acknowledged in Harvard Business Review that any assumptions may be flawed. “For all the rigor that may lie behind a given IMM calculation, it is possible that some other analyst will rely on a different, equally valid anchor study that leads to a quite different number.”

Heated debate

At the same time TPG Growth is pushing its own methodology, the emerging industry is starting to converge around shared norms for impact measurement and management. The Impact Management Project is coordinating the efforts of a network of standard-setting organizations to give enterprises and investors guidelines for measuring and managing impact.

“It’s a space to bring innovation and improvements on historical practice,” says Clara Barby, who leads the project. “The group is coming together to agree on norms.”

One such norm is to account for the total impact of a business, not just a narrow indicator.

“A valuation in monetary terms implies that the result is complete and comprehensive, the way it would be in an internal rate of return calculation,” says SVT Group’s Sara Olsen, a founder of the US chapter of impact standards group Social Value International, a member of the Impact Management Project. “It implies that all impact has been considered.” She said best practices would include submitting reports for third-party validation.

Olsen credits TPG for elevating the importance of impact management among a more mainstream audience. She said it is incumbent on investors to engage with customers and other stakeholders in determining which impact to target, and assessing that impact.

“When investors alone decide whose experience matters, they’re very likely to understate, miss or ignore some of the important impacts, especially negative ones,” says Olsen. This can be mitigated “by having a standard procedure for figuring out who is being affected in a significant way, and involving them in determining what is changing and how to measure it,” she says.

Some of the grumbling is perhaps inevitable as impact investing expands beyond a community of early practitioners. Jed Emerson, who developed early models for assessing “social return on investment,” told ImpactAlpha a focus on monetizing impact “side steps the opportunity we have to invest in funds and firms that address larger, systemic challenges.”

“Those who claim the mantle of impact investor are certainly free to choose where they land upon the impact spectrum—from ignorant and cheap, to broad, deep, and mutual,” Emerson wrote in an email exchange. “But they should not confuse each with the other.”

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