Six private equity giants have signed up to a new philanthropic investment model, designed to fund education-focused non-governmental organisations.
Advent, Permira, Bain Capital, Cinven, Hg and Nautic Partners will donate a portion of their fund management fees and carry to education charities and NGOs through a partnership with Greater Share.
Structured as a fund of funds, the vehicle will invest in the PE firms’ funds; meanwhile, the GPs will donate their management fees and carried interest from Greater Share’s portion of the funds to a selection of education NGOs.
Investors in the Greater Share fund of funds are mainly high-net-worth individuals making minimum commitments of $500,000. These investors will donate 50 percent or 100 percent of their capital gains to the NGOs. Greater Share aims to generate $300 million over 10 years for these NGOs from the PE firms’ and investors’ donations.
“Most high-net-worth investors want to have exposure to high-returning alternatives, in particular private equity. But they can’t get access to the very best funds,” Paul Fletcher, founder and chair of Greater Share and former chief executive and chair of UK development finance institution CDC, told New Private Markets. “The private equity firms are offering space for investors to invest in their funds.”
“This model is an invitation to combine two motivations here,” said Fletcher. It is an alternative to the “classic model” in which investors – including private equity firms and high-net-worth individuals – have philanthropic or corporate social responsibility projects independent from their investments, Fletcher explained. “People find themselves frustrated by the difficulty of being a smart philanthropist. Your philanthropic dollar here is going much further.”
The Greater Share fund of funds “is not a product that seeks to compete with impact funds. It’s very different,” said Fletcher. This is because the capital available for education projects is not contingent on the financial performance of for-profit education companies. Instead, it leverages top-quartile private equity firms’ ability to generate returns via classic private equity investments to draw capital to education projects. NGOs are “being invited to get unrestricted money for 10 years. That’s a step change, allowing them to plan strategically,” said Fletcher, who added that these NGOs do not need to focus on profit or fundraising.
“For high-net-worth individuals, the opportunity to have access to the top-quartile private equity firms is attractive,” said Fletcher. “Our first thought was, ‘If we were to give people access to the very best funds, might they consider giving away or donating the excess results?’
“We wanted to make sure that, in fact, if you were to invest in this and you were to give away half your gains, you would preserve your charitable tax status.”
Greater Share then approached the private equity firms. Their answers were emphatic: “Almost to a person, they said yes,” Fletcher said. “I think there’s something about the community going on here. If you get invited to participate in a group of the very best of anything, you say: ‘Thank you for inviting me. I’m glad I’m one of the very best.’ This is a group that is increasingly saying ‘We’re delighted to be part of this.’”
Greater Share has selected eight education-focused NGOs to which to donate. “We have a community call every six weeks that includes the private equity firms, investors and NGOs. We now have 50 or 60 people on that call.”