Impact special: TPG on its Rise Fund

TPG’s debut impact investment fund hit its $2 billion hard-cap at the beginning of October. Having launched fundraising at the end of 2016, the Rise Fund already had five investments under its belt.

The fund is focused on making measurable social and environmental improvements while delivering competitive financial returns. It attracted commitments from high-profile limited partners, including the Washington State Investment Board, Swedish pension fund Andra AP-Fonden, University of California Regents and UBS Group.

“We have representation from some of the TPG core institutional investors but we also brought in some new ones,” Maya Chorengel, Rise Fund senior partner and sector lead for financial services, tells Private Equity International.

“The super majority of these institutional investors never invested in an impact fund.”

This is in part, Chorengel says, because some of these large LPs have commitment minimums that are much larger than the typical impact fund. She also stresses LPs were not willing to compromise on returns.

The Rise Fund – managed by TPG’s growth arm – promises to deliver TPG Growth-like performance. TPG Growth II, which closed on $2 billion in 2011, has returned a 25 percent net internal rate of return and a 2x multiple as of 30 June, according to a document prepared for the New Jersey State Investment Council. 

The firm is using the same strategy and team to invest the Rise Fund, with a couple of additions, including Chorengel, who came from impact firm Elevar Equity, and Rick Needham, formerly Google’s director for energy and sustainability, who is now the fund’s sector lead for energy. Rise’s focus sectors and geographies also mirror those of TPG Growth.

TPG has also understood from day one that surrounding itself with several key partners was a good recipe to build upon this existing structure, be it around sourcing, underwriting or impact measurement.

Elevar, one of the first market-return oriented impact funds, invests in early-stage rounds of companies in India and Latin America and has a strategic co-investment partnership with Rise. “We have the right to participate alongside them with the knowledge that some of Elevar’s companies will really start to take off and need large sums of capital,” Chorengel says. “Now Rise is positioned to be that follow-on capital should we be interested in those companies because of our relationship with Elevar.”

Across the board

TPG Rise’s Founders Board also helps significantly with sourcing. The board is made up of well-known philanthropists, activists and business leaders including Rise co-founders Jeff Skoll and U2 lead singer Bono, as well as Richard Branson, Mo Ibrahim and Pierre Omidyar among others. These individuals are not only investors in the fund, but also the “visionary body” behind it.

Although they don’t hold investment decision-making roles, board members bring resources, dealflow and their personal network to advance the impact TPG is trying to achieve.

“They are the group with whom we really, on a periodic basis, sit down and talk about our impact objectives, receive guidance, brainstorm, and that’s critical for us,” Chorengel says. “All these individuals came to the Rise efforts because it’s a very important part of their life to advance impact in the world.”

On the underwriting side, consulting firm Bridgespan Group and the Rise Council are the main partners. Bridgespan, which advises non-profits, mission-driven organisations and philanthropists, helped Rise create the impact underwriting methodology to evaluate investment opportunities and quantify the impact potential of prospective portfolio companies. The Rise Council, which has top representative LPs from the fund, dives a bit deeper into the methodology to ensure it is being applied rigorously.

TPG also selected KPMG to work on assurance, a process similar to a financial audit but for impact.

PORTFOLIO COMPANIES

EverFi: education technology company targeting reduced rates of sexual assaults and alcohol-related incidents and death and financial literacy at schools and universities

Dodla Dairy: company in India aimed at reducing poverty

Brava: company that creates domestic hardware and software products to make energy use more efficient
and productive

Dharma: software as a service-based integrated data analytics and workflow platform that streamlines the process of data collection, allowing information to be collected anywhere and in all languages

Lead: company making quality education accessible and affordable to children in underserved communities in India

Source: TPG

“As part of this process, we were also very keen on having a third party come in and independently assess or audit our impact approach and the application of the impact underwriting to each of our portfolio companies and to watch performance over time on the impact side,” Chorengel says.

Measuring impact is a challenge the field has been grappling with for years. TPG has created its own methodology after studying academic research and existing tools from non-profits and corporations.

“The starting point for us was to try to understand all the efforts that had been made and learn and build from them,” Chorengel says. “We collected a database of third-party research across all the categories we’re interested in. We use that evidence to inform our sourcing, underwriting and scoring of the impact the company may generate.”

With this new methodology, TPG came up with a concept called the impact multiple of money, which determines how much net positive social and environmental value is being created for every dollar invested. TPG targets at least a 2.5x multiple of impact on every deal.

“It was a big investment to create this approach, and this is one of the contributions that we feel as a larger fund we can make to the industry,” Chorengel says. “We had the means to invest in a tool that is deeper on the analysis of the impact being created than what exists in the industry today, and the goal is to share our approach with other investors.”

This is only the beginning for Rise. In addition to making many more investments – it plans to have about 30 to 35 portfolio companies in the fund – it is also hoping the work it is doing in impact investing will eventually set a standard for the industry.