Does Bridges Fund Management need to be bigger?

The firm, which can credibly claim to have driven the creation of the impact investing industry, still sits at the top table. It was ranked 16th in our Impact 20 ranking, with a five-year fundraising total of $600 million.

Yet we are now in an era in which private markets managers such as Brookfield Asset Management, Apollo Global Management and Goldman Sachs (to name just a few) are all pitching substantial funds with a mission that goes beyond just financial returns. Between the various new entrants into the market, and ambitious fundraises from existing players, there is a risk that Bridges becomes less relevant in the market that it helped create.

In one sense at least, the Bridges co-founders can pat themselves on the back and say, “mission accomplished”. When the firm was founded in 2002 by Michele Giddens, Philip Newborough and Sir Ronald Cohen, it had two goals, Giddens tells New Private Markets. The first was to make investments that combine attractive returns with positive impact; the second was “to share what we learned along the way, build the field and promote the idea that incorporating impact in your business and investment decisions was the way of the future”.

One example of the leadership position Bridges has taken is the Impact Management Project, an initiative well known in the field as providing guidance on how to measure impact. Bridges played a leading role in forming the IMP and, along with other consensus-building efforts, this has contributed to impact investment becoming a recognised strategy for institutional investors.

“As a firm that has tried to play its part in getting to this point, we have to first celebrate the fact that there are a lot of other players now,” she continues.

Bridges is a multi-strategy private markets firm. It has raised four generations of a flagship growth capital private equity fund family, as well as an additional evergreen fund and US private equity fund. The most recent growth vehicle was £81 million ($112 million; €95 million) and closed in 2017. Bridges has a real estate business, larger in terms of AUM than PE: it has raised four funds in total and is understood to be in the market raising £300 million for its next flagship property fund. Finally, it has a “social outcomes contracts” business, a way of delivering public services in which the provider is paid not by a set of specifications, but by agreed delivery milestones. It is a strategy that allows Bridges to channel capital to some of the less commercially investable problems society faces, where innovative finance structures are needed. “These are a small proportion of the assets that Bridges manages,” says Giddens, “but they are important to who we are.”

Bridges is predominantly UK-focused but has a $65 million US vehicle and an Israel-based affiliate that shares the brand, but is a separate company.

Like other private markets firms, Bridges does not disclose details about the financial performance of its funds.

In total the firm has raised more than £1 billion since inception. To make a greater impact, says Giddens, the firm needs to scale up. “If you are a firm with a dual purpose of making attractive returns, but to do it through solving social and environmental challenges – which as we all know at the moment are absolutely huge – a major driver for scale is that it allows us to play a bigger role in solving those problems.”

To assist with the task of scaling the firm, Bridges has appointed Christophe Evain, the former CEO of listed investment business ICG, as non-executive chairman. Evain presided over a major expansion at ICG, steering the firm beyond its roots as a corporate private equity and debt investor into a multi-strategy private markets player. It’s now in private equity, secondaries, real estate and infrastructure, playing across the capital structure. During Evain’s seven-year tenure as CEO, ICG grew from having €11 billion AUM to €24 billion when he stepped down in 2017. This makes Evain “the perfect chair for where we are in our strategic development”, says Giddens.

Evain, who has bought into the partnership, tells New Private Markets that Bridges has achieved a level of awareness across the industry that goes beyond its size.

“There is an increasing amount of capital flooding into impact, and as a pioneer we think we are in a position to take a significant portion of this and grow, not only our existing strategies, but also add new strategies as we go along,” says Evain. “This is where I can help.”

Evain describes the “virtuous circle” of attracting more clients, making strategies bigger, expanding them geographically and “attracting new people that share your values”. He continues: “That’s exactly what the team at Bridges will be capable of doing.”

Giddens notes that the firm has a “very deliberate goal” to expand its LP base internationally, having attracted a primarily UK-based set of investors so far. The task should be helped, she says, by the connections the firm has made in its role as impact investing advocate. “Through that field-building role, we have had the great pleasure of working with large institutional investors globally, as they’ve been thinking about how to approach impact in their own portfolios.”

Growth will come from a combination of expanding existing strategies – raising bigger funds – and adding new products, Giddens and Evain say. What those new products will be is at this stage unclear, although Giddens notes an emerging markets offering is in the works, although declines to comment further.

What about other asset classes, like private debt? The pair rule nothing out, but Giddens stresses that the decision to launch new products starts with the social or environmental problem the firm wants to tackle, and then works backwards to create an investable product: “the best financial tool” that does the job. “When we think about new products that we might do, we’re generally thinking more in terms of investment themes than specific asset classes,” she says.

If scale is what’s needed to increase the impact, there is another way to get it. Has the firm been approached by any bigger asset managers looking to buy in a ready-made team with impact credentials? “Yes, the firm has been approached and will continue to be approached,” says Evain, noting that there aren’t many independent firms out there like Bridges with impact “in their DNA”.

Giddens welcomes conversations with other asset managers, she says, just not about buying the firm. “We put a high value on our independence and specialisation, which is probably part of what attracts our team to be here and attracts the LPs to us.” Bridges is owned by its leadership group, including the new non-exec chairman. It has also started to distribute ownership more widely across the partner group, says Giddens. The Bridges Impact Foundation – a philanthropic entity funded by profits from the firm – retains a golden share designed to ensure Bridges remains aligned to its impact mission.

Is there a risk that the integrity of the firm’s mission is compromised by a quest to manage more capital? You could put a similar question to any private equity firm in a position to triple its fund size in one go, responds Evain. “The growth has got to be gradual,” he says, “but over time the size of these deals is only going to get bigger and bigger, and an increasing proportion of investments that are being made [in private markets] will have a positive impact.”

The recent exit of World of Books is the type of deal that gives the firm confidence that impact can scale in proportion to deal size. The company is a circular economy business that promotes access to literature and uses tech to efficiently resell second-hand books that would otherwise be headed for landfill. This year the company expects to generate revenues of more than £100 million, a 30 percent year-on-year increase. It was sold to private equity firm Livingbridge and while financial details were not disclosed, website Unquote reported the EV at between £150 million and £175 million.

There has never been more institutional interest in impact investment than there is today. In its communication around the World of Books acquisition, LivingBridge, a generalist private equity firm, cited its “heritage supporting mission-led businesses”. Private markets firms are aligning their capital with a purpose that goes beyond simple profit. For Bridges, the time to pursue its “more scale means more impact” mandate is now.