 "A new fund seeks both financial and social returns")
“There is a lazy mindedness that we afford the do-gooders.” That was Bono, the musician turned activist turned investor, lamenting the pitfalls of what has become an increasingly fashionable form of financing: social impact investing.
Just about every big Wall Street firm and big-time philanthropist has recently tried to get in on what’s often called double bottom line investing. The idea is that an investment isn’t just intended to score a high return; perhaps more important, it is supposed to make a significant difference in an area that had been considered un-investable. Goldman Sachs, for example, created social impact bonds to reduce the recidivism rate for adolescent offenders at the Rikers Island correctional facility in New York City.
Most of these efforts have had mixed results; either investors lost money, or the social impact was negligible or nonexistent. It has become, as Bono told me, “a lot of bad deals done by good people.” Now, a group of high-profile executives and investors are putting together perhaps the most ambitious social impact fund. Called Rise, the $2 billion fund is being developed by William E McGlashan Jr, a partner at the private equity firm TPG, who more resembles a Buddhist monk than a cigar-chomping banker in pinstripes. He left his home in San Francisco in 2013 and moved his family to India for a year so he could be closer to the firm’s investments in Asia.
McGlashan has long overseen TPG Growth, a fund he started that was an early investor in the sharing economy, with stakes in Uber and Airbnb, as well other technology successes like Spotify. His first fund had an annualized rate of return - the metric that private equity firms use to measure themselves - of 20 per cent; the second fund’s return was 45 per cent. But his investments in businesses like Apollo Tower, a cellphone tower company in Myanmar, are the model for the new effort. Since McGlashan began backing Apollo in 2014, before Myanmar emerged from military control, the company’s value has more than doubled. More important, Myanmar went from nearly 0 per cent cellphone penetration to 70 per cent, accounting for more than 5 per cent growth in GDP It helped to increase transparency in a country known for tight control of its information, helping the nation take steps toward democracy. The new fund, which will be part of TPG, will be the first large test case for this type of investing. It has an all-star cast of board members, all of whom are investors. Among them are Bono; Jeff Skoll, the first employee of eBay, who now runs Participant Media and is a major philanthropist (“You only need so much for you and your family,” he told me); Laurene Powell Jobs, the philanthropist investor; Richard Branson; Reid Hoffman, a founder of LinkedIn; Mellody Hobson, president of Ariel Investments; Lynne Benioff, a philanthropist; Mo Ibrahim, perhaps the most influential investor in Africa; and Pierre Omidyar, the founder of eBay and a backer of First Look Media. Others have tried to build social impact funds at a much smaller scale. Rise does away with benchmarks manufactured after the fact and has created a series of strict metrics by which to measure social impact. And an outside auditor has been brought in to keep it honest.
And the investors involved don’t consider this charity - pension funds and sovereign wealth funds are expected to be among the biggest investors. At least two large pension funds and one sovereign wealth fund have committed nine figure sums, according to people briefed on the investments, which have yet to be made public.
“The reality is that no matter which side of the aisle you’re on, and no matter where your framework is, if I can build a great business that’s profitable and successful and, oh, by the way, here’s the impact and the multiple of impact that’s created through that business’s successes, I think that’s good for everybody,” McGlashan told me.
© 2016 The New York Times News Service
