December is a month when we all take time to remember and to reflect – on ourselves and on what it is important. As the holiday season and the beginning of the new year sets upon us, it encourages a self-assessment of our own priorities and to take a good, long, reflective look in the mirror. What will we remember about this year? What are we proud of and what could we have done better? December is the time to ask ourselves these tough questions and correct course toward being the people we want to be, especially as life continues to get in the way.
Front and center on that list (in addition to maybe losing a few pounds, cleaning out the garage, and finally taking up that hobby that has long evaded us) is the quest toward just generally “becoming a better person.” And usually high on that same list calling out how to become a better person, is the idea of performing more philanthropic acts or other forms of charity that not only make the world a better place, but also give us the self-fulfilling reward of knowing that we did something good for others. If only we could make this a continuous part of our everyday lives. (Hint: You can!)
When people think about private equity, they most likely do not think about philanthropic missions. The culture of harvesting profits through revenue growth, cost-cutting, and paying attention to the bottom line seems misaligned with the open-handed mission of a charity. But you would be surprised – there are increasing examples in the private equity industry of those that find ways to do a charitable service, both individually and through portfolio companies, and thus make it a part of everything they do.
This approach to invest for more than just economic interests is a relatively new buzzword in the industry called “impact investing,” favoring social good in addition to pure economic gains.
Let’s first look at some big-name players as examples of people serving something greater than themselves. David M. Rubenstein, one of the founders and CEO of The Carlyle Group, is one of the signers of the Giving Pledge, committing to dedicate the majority of his wealth to philanthropic missions. There is also George Roberts of KKR who donates significantly in the Bay Area and has started several charitable foundations. And, of course, Michael Milken, who has also signed the Giving Pledge and established several charitable causes over the course of his illustrious career.
What these leaders in the private equity world realize is that investing for economic gain only goes so far – we should all ultimately realize the bigger purpose of our work. But why wait until we have accumulated wealth to serve a greater good? What if we could find ways to continue to support good causes and still seek a strong financial return in the process? As social awareness is at all-time highs through social media, investors are asking themselves this question, and looking for ways to win both financially and in promoting a greater, positive impact on the world around us. And the market is responding to this new demand.
This approach to invest for more than just economic interests is a relatively new buzzword in the industry called “impact investing,” favoring social good in addition to pure economic gains. Investors are measuring managers not only by returns but by the measurable social impact of their investments as well. And, as a result, the worlds of investing and philanthropy are rapidly colliding at all levels, some using private equity strategies to support businesses making a difference.
For instance, Goldman Sachs, Morgan Stanley and JPMorgan have all created social impact investment strategies, inviting direct investment in sectors where the world’s most difficult challenges exist, such as sustainable agriculture, renewable energy, microfinance, and specific healthcare strategies. These strategies are directly supporting the very businesses doing the work for the greater good. And their philanthropic cause is serving more than just the bottom line.
And if businesses doing a greater good will continue to receive increased sponsorship from the private equity community and beyond, then we are all in for good things on the horizon. Making a difference and making a profit will become synonymous.
Although Palm Tree does not invest in businesses directly, we are increasingly working on businesses that serve a larger purpose, in addition to generating a good profit. Healthcare, clean technologies, and environmental services are just a few examples of businesses we are seeing in greater volumes. And Palm Tree is responding in kind by finding ways to give back throughout the year – our own form of our work giving support to more than just our own economic interests.
For instance, Palm Tree is a large contributor to the Los Angeles Center for Law and Justice, focused on helping victims of domestic violence, particularly immigrants. Our choice to give to this charity is not only based on our personal interests in serving the cause, but is also a parallel to our mission of solving complex problems. And we don’t go at this alone. Each year, we invite several of our closest client relationships to participate with us, giving us a chance to connect with our clientele beyond how we typically work with them.
As we think toward the new year, and all the things we want to accomplish and hopefully become, I am encouraged by the direction we are taking toward making philanthropy a larger part of our core. Donating wealth and time to charitable causes via impact investing is about making philanthropy a central part of our actions and attention. And if businesses doing a greater good will continue to receive increased sponsorship from the private equity community and beyond, then we are all in for good things on the horizon. Making a difference and making a profit will become synonymous.
Happy New Year.