The Brief: Impact-first family offices, structuring capital for impact, Black genius, lending to underserved Brazilians, equitable vaccine distribution
Greetings, Agents of Impact!
Signals: Ahead of the Curve
How these wealthy families are driving outperformance on impact. Investors willing and able to prioritize impact over financial returns are behind some of today’s highest-impact innovations. Catalytic investment strategies, sometimes decades in the making, helped lay the groundwork for the mRNA platform that was used to create COVID vaccines, for community development financial institutions as a pandemic-era lifeline for underserved businesses, and even for the breakout growth of electric vehicles. Long the stomping ground of private foundations, a growing number of family investment offices are on a quest for outperformance on impact. In “Back to the Frontier: Investing that Puts Impact First,” the consultancy Bridgespan highlights the families and the growing ecosystem of fund managers, advisers and intermediaries that are enabling the shift.
- Freedom to act. Fiduciary obligations to deliver market-rate returns have strangled conventional impact investors from prioritizing impact over financial return. “By contrast, high-net-worth individuals and family investment offices have the discretionary power to declare impact a priority when investing assets,” write the authors, including Matt Bannick, formerly managing partner at Omidyar Network and now a Bridgespan fellow.
- Catalytic investors. Charting the course are Pam and Pierre Omidyar at Omidyar Network, Liesel Pritzker Simmons and Ian Simmons at Blue Haven Initiative, the Berwind family at Spring Point Partners, and Diane Isenberg at Ceniarth (see, “Fighting poverty and remaining rich: Ceniarth shifts portfolio to impact-first capital preservation”). Still, impact investors annually deploy less than 10% of capital toward catalytic strategies.
- Impact-first funds. Alongside direct investments in social ventures, impact-first investors invest through a growing number of impact-first funds. Among them: Prime Impact Fund, WaterEquity, Global Partnerships, the Perennial Fund, Candide’s Olamina Fund and dozens of community development financial institutions.
- Operationalizing impact-first. Some family offices are outsourcing their impact-first investing to advisors, including Jordan Park, Tiedemann Advisers, Align Impact and Avivar Capital. Others build the team in house, including Omidyar Network (100+ staff), Ceniarth (13), and Blue Haven (10).
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How capital structures in high-risk asset classes can undermine positive impact. In their search for yields and returns, pension funds, insurance companies, sovereign wealth funds and endowments with massive amounts of capital have increasingly sought out riskier assets classes, such as private equity and debt, venture capital, high-yield bonds, and collateralized loan obligations. Buyout funds alone raised $300 billion in 2020 as they eyed businesses weakened by the pandemic. Some of the institutional capital has poured into impact investing funds launched by private equity giants like TPG, KKR, Apollo and Carlyle. That requires impact investors to take stock of how such firms structure investments, which over time have contributed to unsustainable corporate debt loads, lay-offs, and bankruptcies that can destabilize the economy and exacerbate issues such as wealth inequality. “ESG and impact investing frameworks focus on issues at the portfolio company level, but they do not take into account potential negative impacts from capital structures and investors’ influence in shaping them,” write Delilah Rothenberg, Raphaele Chappe and Amanda Feldman of the Predistribution Initiative, a multi-stakeholder initiative to improve financial structures (see, “Agent of Impact: Delilah Rothenberg“). In a new report, “ESG 2.0: Measuring & Managing Investor Risks Beyond The Enterprise-Level,” the authors offer up 11 potential solutions to address such risks. Investors “need to understand that their allocations to high-risk asset classes can ultimately undermine their long-term return goals and commitments as responsible fiduciaries.”
- Asset allocation. Revenue-based finance, employee and community ownership models, and longer-term structures, such as evergreen funds and holding companies to accommodate them, represent emerging asset classes in the middle of the risk-return spectrum that can provide stable returns, improve diversification and reach more emerging managers and small and medium-sized enterprises.
- Fund manager, measure thyself. Asset owners and allocators could require fund managers to report on their compensation and pay ratios, political spending and tax practices, including where the fund is domiciled. Investors need to adopt frameworks that consider systematic risks across a portfolio, argue the authors. One idea: weighting asset values in inverse proportion to their risk.
Dealflow: Follow the Money
FiveT’s Hydrogen Fund rakes in €260 million to finance green hydrogen infrastructure. Green hydrogen, produced with renewable energy through a chemical process called electrolysis, could provide a source of clean fuel to help decarbonize sectors such as heavy manufacturing and aviation. U.S.-based energy tech companies Plug Power, Chart Industries and Baker Hughes are coming together to invest in the new fund from Swiss asset manager FiveT Group, which will invest exclusively in green hydrogen production, storage and distribution. “This moment in the hydrogen journey requires a very innovative approach to infrastructure investment,” said FiveT Hydrogen’s Pierre Etienne Franc. The fund will seek additional “financial and industrial limited partners wishing to be hydrogen infrastructure key players.”
- Cornerstone commitments. Plug Power, a leader in green hydrogen, is committing €160 million ($200 million); energy equipment manufacturer Chart Industries and energy tech company Baker Hughes are each committing €50 million. FiveT is looking to raise €1 billion by Q3 2021.
- Scaling up. U.S.-based ZeroAvia secured $24.3 million to support hydrogen-fueled aviation. Israeli cleantech venture H2Pro last month raised $22 million from Breakthrough Energy Ventures and IN Venture to scale green hydrogen production. Green Hydrogen Systems is also cashing in on the green hydrogen trend.
- Plug in.
Genius Guild scores $5 million financing to back Black-led tech ventures. Racial inequities have cost the U.S. economy more than $16 trillion over the past two decades. Closing racial gaps in wages, housing credit and business capital could add $5 trillion in GDP over the next five years, according to Citigroup. Genius Guild, a new platform created by tech investor and entrepreneur Kathryn Finney, will build and invest in Black-led companies serving Black communities with potential to scale globally. “As a Black American woman, the poison of racism removed the right of my family to own their livelihood,” wrote Finney in a Medium post. Finney’s great grandparents were victims of the 1921 Tulsa race massacre in the city’s Greenwood district, known as “Black Wall Street.”
- Building an ecosystem. Genius Guild secured $5 million from Melinda Gates’ Pivotal Ventures, The Impact Seat, First Close Partners, Facebook’s Andrew Bosworth and other investors. Genius Guild Labs and Genius Guild Studio help incubate and support Black-led tech ventures. The firm’s in-house Greenhouse Fund will make pre-seed investments of up to $200,000 in fintech, health tech and other tech ventures, such as Greenwood Bank, Invest Sou Sou, Goodr and Care Academy.
- Check it out.
FinanZero raises $7 million to expand consumer credit for underserved Brazilians. Most of Brazil’s 211 million people now have access to financial services, but only about a quarter are able to borrow money via credit cards or banks, according to the World Bank. FinanZero launched five years ago to boost Brazilians’ access to credit. Rather than providing the financial services itself, which is how many financial services disruptors enter the market, the São Paulo-based fintech acts as a loan broker with mainstream banks and other fintech companies. A group of Swedish investors backed the company.
- Competitive edge. The cost of credit in Brazil is notoriously extractive, with annual interest rates averaging 300%. (The Brazilian government has taken up legislation to set a credit rate cap.) FinanZero’s platform supports consumers in securing lower rates by increasing competition among lenders. The platform also does not charge application fees, and instead takes a commission from lenders. Still, only about 10% of applicants get approved for a loan, TechCrunch reports.
Dealflow overflow. Other investment news crossing our desks:
- Swedish pension fund manager Alecta invests $156 million for a 20% stake in wind farm operator Stena Renewable. It’s Alecta’s first direct infrastructure deal.
- Uruguay’s dLocal secures $150 million to facilitate cross-border sales transactions for emerging market merchants.
- Home solar distributor Baobab+ raises €4 million ($4.7 million) from Triple Jump’s Entrepreneurs Growth Fund, FEI-OGEF and LHGP Asset Management to expand off-grid energy access in Senegal and Côte d’Ivoire.
- E-commerce platform Wayfair invests $20 million in LISC’s Black Economic Development Fund as part of a $30 million commitment to racial equity.
- London-based what3words snags £12 million ($16.7 million) from IKEA’s parent company Ingka Global to build out its universal addressing system, designed for disconnected and hard to reach communities.
- Peloton Capital Management and Canadian investor Stephen Smith acquire proxy advisor Glass Lewis from the Ontario Teachers’ Pension Plan Board and Alberta Investment Management.
Impact Voices: Pass the Mic
Four ways that private funders can ensure vaccines reach hard-hit communities. The pandemic and its side effects won’t end with a shot in the arm, especially when those shots are not being distributed equitably to communities of color and others that have been hardest hit by the pandemic. “We can’t afford donor fatigue as we confront the last-mile delivery challenges of COVID-19,” argue ImpactAssets’ Margret Trilli and Sharon Knight of Stop the Spread, a COVID-relief organization, in a guest post on ImpactAlpha. Key interventions: Help community-based organizations conduct local outreach. Overcome the digital divide in appointment scheduling. Make vaccination sites accessible. And take advantage of post-vaccination observation to conduct broader health screenings.
- Community-based. In New York City, Stop the Spread is helping Community Healthcare Network stand up fixed and pop-up vaccination sites co-located in faith and community-based organizations from East New York to Jamaica Queens. The community newsletter Epicenter has helped more than 2,600 people who aren’t digitally savvy get vaccinated. In Los Angeles, St. John’s Well Child and Family Center is optimizing the 15-30-minute post-shot observation period to address clinical and social needs.
- Keep reading, “Four ways that private funders can ensure vaccines reach hard-hit communities,” by Margret Trilli and Sharon Knight on ImpactAlpha.
Agents of Impact: Follow the Talent
MaryKate Bullen departs New Forests for a new opportunity in forestry investment… Avary Kent leaves after seven years as head of Conveners.org… Vikas Raj departs Accion Venture Lab after eight years with the fintech investment firm… Darren Rabenou, ex- of Fabbri Fund Management, is named head of food and agriculture and head of ESG investment strategies at UBS Asset Management.
CREO seeks an investment director for the Americas… Black Farmer Fund is hiring an operations director and a communications lead… Manifest Climate is looking for a senior climate strategist specialized in sustainable finance in Toronto… Adobe is recruiting a sustainability and social impact lead in San Francisco… Louisville, Ky.-based Render Capital is accepting applications from early-stage startups for its second annual Render Competition, with awards of $100,000.
Thank you for your impact.
– Apr. 6, 2021