Apollo’s approach to impact investing

Executives at the alternatives giant discussed the firm's impact strategy at PEI's Responsible Investment Forum last week.

Apollo Global Management launched an impact investment platform last summer, following in the footsteps of its peers who have founded strategies of their own.

Speaking at Private Equity International’s virtual Responsible Investment Forum: New York in March, Joanna Reiss, co-lead of impact and partner at Apollo, said that what sets the alternatives giant’s strategy apart is that it invests in later-stage businesses.

“Our view is that by doing so we can generate a lot of more impact because we are widening the aperture on the investable universe away from those areas where the focus has traditionally been,” Reiss said. “This also allows ourselves to think a little bit more broadly about how to own businesses for impact and not just buy businesses that are impactful on day one.”

PEI RIF NY 2021 - Apollo Impact
Hall (bottom-right): Apollo Impact to potentially tap carve-out opportunities and platform build-ups

Lisa Hall, impact chair at Apollo, noted during the panel that impact investing was “traditionally focused on early stage, venture and increasingly moving toward growth”. Apollo’s impact strategy will look at the part of the life cycle that is not being addressed by most impact investors, she said.

“We think we have a very unique opportunity to serve later-stage companies – to really be able to provide buyout opportunities and potentially carve-outs and platform build-ups,” Hall said.

Many of the companies Apollo’s impact team is looking at do not define themselves as impact companies, added Marc Becker, co-lead of impact and a senior partner.

“It’s important for people to understand that we are not taking a purist approach here,” Becker said. “If 65 percent of a company is focused on doing good and 35 percent of its operations are not, it’s still worthy of consideration so long as that 35 percent is not doing harmful things. If a company has scale, brand, thousands of employees, a distribution network, and is making a difference and driving change, we think it’s still important to allocate economic and intellectual capital to it.”

The Apollo Impact platform will focus on opportunities in industries aligned with the UN Sustainable Development Goals, namely economic opportunity, education, health, safety and wellness, industry 4.0 and climate and sustainability, according to a statement.

Apollo said last year that it was launching an impact investing platform. Given this status, Apollo executives at the conference declined to comment on fund specifics or investments that may have been made thus far.

Speaking more broadly on where Apollo plans to source opportunities, Reiss said on the panel: “We want to be mindful of where’s our place for private capital… where our lane is versus government, versus philanthropy.

“Apollo’s great strength is being very thoughtful about what we do well, what our capabilities are and where we have unique talent that can drive great outcomes. We are not entering any of these spaces to be mediocre.”

Measuring impact

Apollo Impact will draw from existing best practices, impact tools and framework, according to Hall. Among these tools include Impact Management Project’s five dimensions of impact – who, what, who, how much, contribution and risk – for investors to better understand their impact as well as portfolio and individual investment performance. Apollo is working with Bridgespan Group in assessing deals and KPIs for impact.

The firm is also a signatory to the International Finance Corporation’s Operating Principles for Impact Management, which provides independent verification.

Reiss noted that the team will work alongside portfolio company management teams to set the strategies and align financial incentives with impact outcomes.

The Global Impact Investing Network estimates the size of the impact market at $715 billion in assets under management as of end-2019, compared with $114 billion in 2017, according to its Annual Impact Investor Survey 2020.

KKR gathered $1.3 billion against a $1 billion target last year for its debut impact fund. TPG, Bain Capital and Partners Group also have dedicated impact funds. Blackstone Group has an impact investing platform which is part of its Strategic Partners unit.