When we launched New Private Markets a little over a year ago, among the early content was a focus on employee ownership. We were looking at what KKR was doing with some of its portfolio companies – extending share options to their entire workforces – and asking: why weren’t all firms doing the same?
This felt like just our sort of topic: a conventional private markets investment play – industrial sector buyouts – with a layer of innovation that produced positive externalities and resulted in positive financial returns for investors.
As a story, it also illustrated the blurry boundaries of the topics we set out to cover. Here was an initiative with clear sustainability implications – tackling inequality – but it had taken root not in the firm’s dedicated impact fund, or in its sustainability team, but in the oldest part of KKR’s business: US private equity.
One lesson we have learned one year into the life of New Private Markets is that while it is easy enough to define boundaries between the two areas of ESG and impact investing, there will continue to be grey areas, debate and plenty of opportunity to share ideas between the two. Linking loan costs or carried interest to sustainability metrics, for example, are two ideas equally applicable to both. Improved financial inclusion can come from targeted investment into emerging markets microfinance providers; it can also come from the American factory floor.
When we compiled our inaugural Impact 20, a ranking of the largest private markets impact managers by capital raised, we found grey areas aplenty. Specialist impact managers rubbed shoulders with mega firms with dedicated impact funds and “mainstream” managers that have aligned their whole strategies with positive impact.
There has been a lot to digest in the 12 months covering what is arguably the most exciting and important investment trend of moment.
Climate funds have emerged and – at the large end of the market – eclipsed the size of generalist “impact” offerings. TPG Rise provides a microcosmic example: the $7.3 billion it closed on for its debut Rise Climate Fund this week is more than twice what it will try to raise for its third Rise Fund. If Brookfield raises $15 billion for its global transition fund – as it has suggested – it may well top our ranking of impact managers in one fundraise. Perhaps investors are being more drawn to impact themes – climate, healthcare, DEI – than generalist impact strategies? It’s a topic we discussed this week with Nuveen.
Consistent and comparable ESG data has been a long-running issue for sustainable investors in private markets. 12 months since we launched – with the ESG Data Convergence Project gathering steam this week – the landscape looks very different: potentially simpler and brighter.
And then there is role of the regulator. When we launched, debate was raging about what should qualify as green within the EU’s sustainable finance rules. 12 months on, and while the debate in the EU continues, managers in the US are weeks or even days away from discovering how the US Securities and Exchange Commission proposes new rules to combat “greenwashing.” It may be moving in fits and starts, but it is clear that regulation will have a big hand in shaping sustainability in private markets in the medium term.
It is fitting that as New Private Markets turns one, KKR’s initiative to widen equity ownership at its portfolio companies is once again in the spotlight. Having closed its latest 13th North American private equity fund on $19 billion this week, the firm revealed that it would roll the programme out to every company in which the fund takes a majority stake.
It is also one of 60 organisations to found Ownership Works, a non-profit created to support companies transitioning to shared ownership models. Perhaps this is an idea that will take hold after all.