“We need to be cognizant as investors that we’re not over-emphasising the need for metrics and letting that paralyse us from directing capital where it needs to go,” said Jennifer Signori, managing director of ESG and impact at Neuberger Berman, at PEI Media’s Responsible Investment Forum: New York last week.
Neuberger Berman raised $280 million for its debut impact fund, which closed in April 2021. Speaking about the private equity impact investing market generally, Signori continued: “There is a bias to be able to measure observable outputs from more mature companies that have revenues and profitability, and actual KPIs that you can measure and track. It’s easier for those companies to fulfil the emphasis that we’re seeing around metrics and reporting. That being said, it’s important the capital is also being directed to earlier stage opportunities for investors who are able to, because that’s where a lot of the technology and innovation will happen.”
On Neuberger Berman’s strategy to invest this capital, Signori said: “For our impact investments, we seek to identify companies where the impact potential is integral to the business model. Those are the products and services for which, as the company grows and thrives, so too does the impact.” The firm is seeing strong dealflow, Signori added. “But the fundamentals absolutely have to be there. These have to be good companies that we believe are well run, have commercial viability, competitive positioning and all the traditional things that we’re looking at in underwriting on behalf of our clients.”
Neuberger Berman’s impact fund invests in several sectors, including healthcare and climate. “In the healthcare space, we look for business models where the companies are managing for long-term health outcomes, cost reductions to the system or investing in preventative care,” said Signori. “On the environmental side, we’re investing in companies that we believe have unique solutions to enable the energy transition. For example, a company we invested in helps utility companies more efficiently manage their existing infrastructure, such as being able to process energy demands during peak times, and importantly, enabling the integration and onboarding of renewable energy sources like solar and wind to the grid.”
Hamilton Lane’s impact strategy co-head Jackie Rantanen, alongside Signori on the panel, was more adamant about the need for impact data: “We’re fiduciaries. We have to see [a potential portfolio company’s] ability to provide data and information on both the growth of the business and identifiable impact.”
Hamilton Lane is targeting $400 million for its second impact fund, which launched in April 2021. There is strong demand from investors for impact funds, said Rantanen: “Millennials have been a big driver of how we will invest and consume as we go forward. We’re seeing that demand from them particularly on the high-net-worth side. And we are seeing faith-based organisations, endowments and foundations align their capital with their core value and missions.
“At Hamilton Lane, we’re investing in companies that are innovative, where disruptive technology is driving both the growth of the business as well as the identifiable impact,” Rantanen continued. “We’re investing in companies that are taking food from farms that would otherwise be wasted and have an e-commerce system to get that food to consumers. We’re investing in companies that are changing the way we work with our antiquated power grid. We’re working with companies that are engaging with their employees around corporate giving and volunteerism and a lot of that is millennials.”