ImpactAlpha, Nov. 14 – When Deval Patrick left office in 2015, he raised eyebrows by joining Bain Capital, the private-equity firm co-founded by another former Massachusetts governor, Mitt Romney.
Rather than pursue distressed companies to “buy, strip and flip” with leveraged buyouts, however, Patrick was looking for plays in companies expanding economic opportunity, healthy living and a more sustainable economy. With its $400 million Double Impact Fund, Bain became one of the first major private-equity firms to raise a dedicated impact fund, and Patrick became perhaps the country’s best-known “impact investor.”
As he mounts his late bid for the Democratic presidential nomination, Patrick will decide for himself whether to run on, or away from, his track record, and even identity, as an impact investor. In his campaign launch video, Patrick makes no mention of Bain nor his efforts to mobilize private capital for companies such as Impact Fitness, Rural Sourcing and Sustainable Restaurant Group.
If Patrick doesn’t highlight his private-equity career, his critics certainly will. Like it or not: impact investing will be on the ballot.
“I think impact investing is an incredibly interesting and exciting way to participate in growth capitalism,” Patrick told CNN’s Jake Tapper. “I describe myself as a capitalist. I’m not a market fundamentalist. I don’t think markets solve every problem the right way.
“I do believe in opportunity,” he said. “I think we need an economy that is expanding and is expanding out so it reaches people on the margins, not just up, so it’s good for people who already have wealth and just want more. I think there is a right way and a wrong way to do that.”
What we know about Bain Capital’s $390 million Double Impact Fund
Funds and policies that seek to leverage and incentivize private capital for public good have technocratic appeal in a world awash in both cash and urgent needs. Recasting gaps in public financing as private investment opportunities can vastly multiply the capital available for social and environmental solutions.
But such impact investments also raise complex questions about public responsibilities and private accountability. In a climate of both left- and right-wing populism, the social impact investment prerogatives of billionaires and other high-net-worth families, as well as corporate and institutional investors, can be skewered as an elite affectation rather than a popular movement.
“Impact investors will always be squeezed by people on the left who say profit is evil,” tweeted Nonprofit Finance Fund’s Antony Bugg-Levine, “and on the right who say seeking impact is sloppy capitalism.” Critics of Patrick’s private-equity career are “seeking to negate the space we have worked to create for the impact investing movement,” Bugg-Levine added. “We need to push back.”
Impact portfolio
Before launching Bain’s impact fund, Patrick spent a year surveying the impact investing landscape, attending industry events such as SOCAP in San Francisco and the Impact Capitalism Summit in Chicago. Fundraising was reportedly slow. He described the fund as “modest” in the context of Bain’s $75 billion in assets under management.
Patrick and his Bain partners themselves put up $40 million of the $400 million raised. The rest came from public and private pension funds, family offices, endowments and others, many of which were making their first explicit impact investments. Bain Double Impact has deployed about two-thirds of its capital into 11 portfolio companies.
“Our commitment is to prove the model,” Patrick told ImpactAlpha in an interview in 2017. “We’re being closely followed,” Patrick said. “We owe it to the field to do it well.”
Bain has been followed into impact investing by fellow private-equity giants such as TPG Growth, which has raised more than $4 billion with its two Rise funds, and KKR, which recently crossed $1 billion for its Global Impact Fund. Blackstone, Apollo, Ares and other private-equity firms are raising infrastructure and “social infrastructure” funds as well.
Patrick departs Bain as the firm is raising its second Double Impact Fund, with a target of $600 million. Double Impact’s co-managing partner Todd Cook will manage the new fund, according to Axios.
Bain’s first fund was seen less as a threat to the integrity of impact investing than as a signal that “impact” could scale.
“To have larger investors like Bain Capital enter the impact investment marketplace is the sign of an increasingly vibrant capital market for businesses at various stages of investment,” Brian Trelstad, a partner at Bridges Fund Management, said at the time.
Bain’s fund co-invested with Bridges in its first investment in Impact Fitness, which provides affordable gym access in 29 underserved communities in Michigan, Indiana, British Columbia and Ontario. Bain and Bridges tied management compensation and three-year targets to impact metrics, like increases in first-time gym users and usage per month. As a result, Impact Fitness’ B Impact Score, a common assessment social and environmental impact, rose by 67% from 2017-2018. Bain exited Impact Fitness with a sale to Morgan Stanley in June.
A private-equity impact fund like Patrick’s makes bets that sustainability and inclusion drive economic growth. Last year, Bain’s Double Impact fund invested in two sustainable food companies – Sustainable Restaurant Group, which operates five sustainable seafood restaurants in Oregon and Colorado, and vegan restaurant chain by CHLOE – a bet that Americans will eat healthier, more sustainable food in the future than they do today.
Investing in companies targeting health and wellness is a key strategy of the fund. In May, the Double Impact fund took a majority stake in Texas-based dental services provider, Rodeo Dental. The company provides affordable dental services regardless of patients’ insurance status or income-level. Bain Double Impact tracks the number of first time dental patients, at what age children become first time patients (with an eye to helping kids start regular dental visits by the age of three) and patient satisfaction.
Other health companies in the portfolio include long-term care provider HealthDrive and in-home care providers Arosa and LivHOME.
Patrick’s fund was also early on the trend in using technology, not to replace workers with robots, but re- and upskill workers for the new economy. Last year, Double Impact led the acquisition of workforce development firm Penn Foster, which graduates about 40,000 students each year; 88% of alumni say they feel more prepared in their career, according to Penn Foster.
Bain Capital’s Double Impact fund acquires tech employer Rural Sourcing
Patrick’s impact fund showed his peers at Bain Capital a profitable alternative to outsourcing and offshoring jobs: on-shoring and rural sourcing. In March, the Double Impact fund acquired a majority stake in Atlanta-based Rural Sourcing, an IT services and software development firm with hubs in small U.S. cities, where it can recruit skilled workers from local community colleges, universities, and coding bootcamps.
Campaign trail
Patrick makes no mention impact investing or private equity in his 2:35 minute campaign video. He spoke about growing up southside of Chicago “not poor, just broke.” His grandmother had told him: being broke is temporary.
He talked about attending large, overcrowded public schools, being the first in his family to college and law school, and working in government, at nonprofits and in business. Family, great teachers, and adults in the neighborhood and in church taught him to “look up, not down, hope for the best, and work,” Patrick said. He had the chance to live the American Dream, he says, but “I’ve seen the path to that dream erode, bit by bit.”
Patrick’s entrance into the presidential race could make more explicit the policies that bear on investment and the mobilization of private capital, including corporate accountability, wealth taxes and new financing mechanisms for health care and college costs. It’s not yet clear whether Patrick can make impact investing resonate with voters.
Elizabeth Warren’s Accountable Capitalism Act in many ways aligns with the Business Roundtable statement pledging respect for employees, customers, suppliers and communities in addition to shareholders. Pete Buttigieg has attracted social innovation veterans such as Beeck Center’s Sonal Shah (national policy director) and Lean Impact author Ann Mei Chang (chief innovation officer).
Last week, Sen. Cory Booker, an original co-sponsor of the Opportunity Zone tax incentive, unveiled his City 2030 Project to support small businesses and make “major investment” to help “vibrant regional economic hubs bring jobs and opportunity to local residents and surrounding communities.” At least six candidates have produced plans to fund and support minority small business owners, including Kamala Harris’ $12 billion pledge. Former New York mayor Michael Bloomberg, who is still considering his entrance to the race, has put the low-carbon transition at the top of his post mayoral agenda.
“More and more we are recognizing that the kinds of challenges that face us as a nation cannot be solved by government and philanthropy alone,” Patrick told ImpactAlpha. “Business has an important role to play, particularly businesses that are thinking about the full consequences of their actions on the community, on workers, on the planet.”
