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.

On the private debt side, Leonard has close to $20 million invested in Calvert Foundation’s Community Investment Notes. Most of her clients participate. Capital raised through purchase of these notes is being lent to more than 200 non-profit organizations worldwide. Calvert Foundation conducts due diligence on each one. “We think of Calvert [Foundation] as the manager we hire for private debt,” she says.

The initial minimum investment is $1,000 for brokerage and direct purchases, $20 for purchases through online brokerage MicroPlace. Investors earn a fixed financial return of up to 2% depending on the term of the note.

Plug And Play

At last month’s Clinton Global Initiative America meeting, Leonard heard much brainstorming on how to initiate more private debt community investments. “They’re champing at the bit on how to get to scale,” she says.

Meanwhile, “The public side is really plug and play,” says Leonard, who notes that the financial community has spent the past 30 years building a robust toolbox on this side of the impact space.

UBS’s platform houses every socially responsible mutual fund, and investors can make selections based on risk profile, she says. UBS has relationships with most separately managed account managers specializing in SRI, including Trillium Asset Management, Walden Asset Management, Calvert Investments, Pax World Management, Parnassus Investments and Domini Social Investments. They offer a variety of equity and fixed income offerings.

For public debt, Leonard has also used the Community Capital Management’s CRA Qualified Investment Fund, a mutual fund that invests in high-quality fixed-income securities that support community development initiatives such as affordable housing, job creation and small business development.

The fund’s retail shares have a $2,500 minimum investment, and sports an expense ratio of 0.84 percent and a 30-day yield of 2.04 percent.

She also works with Breckinridge Capital Advisors, which focuses on high-grade fixed-income investments through separate accounts. It offers sustainable strategies that include allocations to local government bonds issued to fund impactful purposes such as clean water and public education; bonds from corporate borrowers with best-in-class ESG practices; and green bonds issued by multilateral development banks.

Traditional municipal bond managers are another good way to find impact, she says, because municipal issues fund such things as water projects, schools, open space and hospitals.

Leonard has seen that helping clients reposition wealth as a positive tool can change their relationship to money, especially if they felt burdened by how their inherited wealth was earned.

As interest in impact investing spreads, she suggests that advisors who work with retail clients have an impact toolbox ready and partner with experts in their firms. “The [environmental and social] problems and challenges are immense and the clock is ticking,” she says. “You want to get as much done as quickly as possible.”