When people approach financial advisor Kathy Leonard about the private equity side of impact investing, she has plenty to talk about. But she also encourages them to take a look at public equity, public debt and private debt investments which can likewise create impact and can be imbedded into portfolios much quicker.
“Within a few weeks you can reposition your portfolio and maybe have a bigger impact and footprint,” says Leonard, head of the Leonard Social Investment Group, a UBS Financial Services team based in Boulder, Colo. “Why would I only want to play a sport with one of my arms tied behind my back?”
Leonard, who has been involved in socially responsible investing (SRI) since launching her financial services career 30 years ago, manages more than $300 million in assets for about 70 clients including high-net-worth and ultra-high-net-worth individuals, family foundations and foundations. Private equity is usually reserved for accredited investors, which isn’t a barrier for her clientele. But having “patient capital,” as she calls it, can be tough.
For example, private equity is a longer-term commitment and is very illiquid, she notes. Another challenge is that an offering is not open-ended in this space. “It’s put on a platform, the money is raised and it goes away,” she says.
Where To Turn In Quest For Impact
On the private equity side, Leonard has clients invested in a private equity fund from global investment firm Kohlberg Kravis Roberts & Co. L.P. She has also placed clients in past offerings from Minneapolis-based North Sky Capital LLC (formerly Piper Jaffray Private Capital).
KKR integrates environmental and social considerations into all the investments included in its private equity funds. Some companies held by these funds are enrolled in KKR’s Green Portfolio Program (GPP).
GPP, launched in 2008 in partnership with the Environmental Defense Fund, helps companies assess and track improvements across key environmental areas including greenhouse gas emissions, waste, and water and energy use. Such improvements have rendered estimated cumulative financial impact of $644 million (cost savings and, in some cases, revenue) for 16 participating companies since 2008, according to data on KKR's website.
“We have a number of investors interested in achieving ESG and financial goals,” says Elizabeth Seeger, a principal with KKR.
North Sky Capital is wrapping up its third CleanTech Private Equity fund, a fund of funds that also makes co-investments. In addition to renewable energy generation and storage, North Sky’s CleanTech Private Equity investments include water, agriculture, building materials, transportation and recycling.
“Clean tech is very attractive to us from an investment opportunity perspective due to the growing global demand for limited resources and desire for more efficient products and services,” says Gretchen Postula, North Sky’s head of investor relations. The firm has researched the sector since 2003 and will look into raising future funds once this capital gets fully committed, she says. It looks for private equity-like returns, targeting S&P returns plus 500 basis points at the completion of a fund.
“A company’s true value is realized during an acquisition or IPO,” says Postula, who notes that companies North Sky is invested in are generally still evolving toward that level of maturity. Investments have included electric car maker Tesla; desalinization and wastewater treatment provider Seven Seas Water Corp; and tire recycler Ecore International, which converts old tires into flooring for playgrounds and gyms, field turf and carpet tiles.