Private equity philanthropy: taking responsibility

Giving back to the community is one of the tenets of a more socially and environmentally responsible code of conduct for all companies and is increasingly affecting the private equity industry. With investors and the public recognising social and economic responsibilities as more important and moving them higher up on the agenda, private equity firms are looking to get on board with these changes. Otherwise, they risk losing investors, as many LPs have signed up to the recent UN Principles of Responsible Investment (UNPRI) initiative, prompting some GPs to do the same.

Just yesterday, Apax Foundation, the charity of buyout house Apax Partners, took a 20% stake in Frankfurt-based asset manager Finance in Motion GmbH, which is engaged in developmental activities, among them microfinance. The transaction is not just about backing a socially responsibly investor, as it also significantly increases Finance in Motion's reach, network and capabilities, allowing it to develop new funds, particularly those that will invest equity in micro, small and medium companies, housing projects and renewable energy projects in developing countries. These investments will not only have a positive social impact, but they will also seek to generate returns at the same time. In fact, the Apax Foundation is expecting to commit up to 20% of its assets in social investments as opposed to straight commercial investments.

Microfinance has recently received a lot of attention, as asset managers and high-net worth individuals are seeking to diversify their portfolio with these types of investments, which typically support developing economies by making credit available to small businesses that otherwise struggle to raise capital. The aim is to boost development via entrepreneurship, as it allows local entrepreneurs to grow their businesses, leading to a positive knock-on effect for the entire community. And arguably, the need for microfinance is greater than ever, with developing countries having been especially hard-hit by the global financial crisis as less cash has been sent back into these areas by émigré workers.

The work, however, has to start at home. UK-based Bridges Ventures also looks to combine attractive financial returns with social and/or ecological goals via its venture funds that invest in sustainable companies or businesses that are located in the most deprived 25% of the country. Its track record of generating IRRs of 165% shows that the concept can indeed work.

Another angle of social investing is being pursued by the widely-known Private Equity Foundation (PEF), which supports charities aiming to empower young people not in education, employment or training. The foundation donates funds and provides pro bono support by sharing its members' business skills, enabling charities to become more efficient and improve their overall performance. PEF was founded in 2006 and already supports a portfolio of 15 charities, securing the backing of more than 70 private equity firms and advisers, including banks, law firms, accountancy firms, and consultants.

"The PEF is more than just corporate social responsibility, it's about the whole industry clubbing together to create social good. It's about giving something back in a collective way. We help charities raise more than money - we also spread the gospel about what they do," said Nikos Stathopoulos, managing partner of BC Partners and member of the PEF board of trustees, when speaking to unquote" late last year.

He continues: "All private equity firms should engage in charitable work and contribute – the industry has a set of skills that are very transferable to the charity world."

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