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Private Markets – Impact Investing

Private Markets | SRI and ESG December 10, 2020

By Angelique Pappas

Senior Research Analyst -
Global Private Markets

Angelique is a Senior Research Analyst in the firm’s Global Private Markets group. Within this group, Angelique is responsible for sourcing and performing due diligence on investment opportunities across private …

• Impact investing is a rapidly growing field that has the potential to increase mainstream adoption across institutions and deepen the influence of long-term and strategic investments.

• According to the 2020 Sustainable Investment Survey conducted by Pitchbook, 95 percent of limited partner respondents are already evaluating or increasing their attention to Environmental, Social and Corporate Governance-Focused Investing (ESG). This is consistent with 69 percent of general partner respondents noting increasing interest from clients.

• Impact investing is arguably the most targeted route in implementing a Mission-Aligned Investing portfolio as it relates to a specific value-set or cause.

• In the proceeding paper, we discuss why private market investing is so conducive to structures for investors seeking real influence, key considerations for impact investors and how it is implemented in investor portfolios.

Impact Investing is a Natural Extension within Private Markets

As detailed within our four-part research paper series, Mission-Aligned Investing is a style of investing that aims to align an investor’s values to its portfolio. These values may range from Environmental, Social and Governance issues to specific religious beliefs and more. Impact investing, or the targeted investment in companies or funds with the intention to generate social or environmental impact alongside investment return, is a key approach that may be used in implementing a Mission-Aligned Investing portfolio.

While much of the implementation around Mission-Aligned Investing started in public markets, there has been growing adoption within private markets. Impact investing is a natural extension within private markets as the general partner often has majority control of a business allowing for greater alignment with, and influence over, the organizations’ priorities and growth plans. Impact investing is often targeting specific outcomes – a greener environment, more diverse workforce, access to education, veteran support – and funds can be dedicated to one or more impact initiatives.

There are numerous reasons as to why private markets are most conducive to investors seeking real change, including:

• The focus on impact is made perfectly clear from the outset and companies are purchased with a particular goal in mind.
• Impact investors can act as patient and long-term providers of capital, supporting businesses as they scale over time. They can have direct influence, working alongside management teams as well as contributing their own operational expertise.
• There is also greater transparency into how a specific outcome will be achieved through a general partner’s value-add playbook and historical deal experience.
• Ultimately, there is intentionality to bring about positive change and foresight into how that will be accomplished.

Key Considerations for Impact Investors

The profile of target impact managers is akin to that of any private markets recommended manager. They are experienced investors, but more importantly, they are experienced partners. They seek to invest in people whose values are similarly aligned. These are people who share the belief that purpose can drive profits. Often, they intentionally construct a concentrated portfolio of investments that allows the manager to meaningfully engage with every business as they scale. They create value by tapping into operational resources to support earnings growth alongside impact.

In addition, the investment team or advisors work directly with the executive team on strategic initiatives and they are involved at the board level. They are long-term investors and know that real change can only occur over time. With all decisions and actions, they not only look at what is best for the investors and the business but also how to have the most profound impact.

The information contained herein is confidential and may not be disseminated or distributed to any other person without the prior approval of Fiducient Advisors. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Any forecast represent future expectations and actual returns, volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is a possibility of a loss.

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