Bridges Fund Management has been a forerunner in impact investing since it was founded 17 years ago. Founder Michele Giddens tells us about marrying profit with purpose, and explains why impact funds have outperformed the market in recent years.
Bridges Fund Management, originally Bridges Ventures, was founded in 2002. What kind of goals and ambitions did you have back then, and have these objectives been achieved?
The social and environmental challenges we face are so large and so complex that governments and philanthropy alone cannot hope to resolve them. We urgently need to unlock more private capital to invest in solutions to these challenges, and to develop creative financial tools to make sure this capital reaches those that need it.
In my previous work in developing countries, I’d seen first-hand the power of business and investment to drive positive social and environmental change at scale. So, when I came back to the UK, I joined forces with my co-founders Philip Newborough and Sir Ronald Cohen to launch Bridges. We believed that by investing in the transition to a more inclusive and sustainable economy, we could generate both positive social and environmental outcomes and attractive financial returns – which in turn would help to attract more capital into this type of investing.
Back in 2002, the term ‘impact investing’ didn’t even exist, and many large investors were skeptical of our idea that you could marry profit with purpose. Today, there is a far greater awareness that investing in this transition represents a real opportunity to create and protect long-term economic value. And there’s been a corresponding growth in the market: we’ve seen so many large institutions enter this space in recent years, which both validates the market and accelerates its growth.
There’s clearly been a sea change in the way people think about these issues – particularly among the younger generation, who seem to be far more concerned about the social and environmental impact of their buying, employment and investment decisions. And we have a far more developed market infrastructure, with a growing number of specialist operators and a far greater range of products available to investors.
So there’s clearly been a lot of positive progress, and we’re hugely excited about the potential of this sector over the next few years. On the other hand, the fact remains that most of the capital in global financial markets today is still invested without any consideration of impact. We have a long way to go yet.
Even today, impact investing is still a relatively new asset class. How have LPs responded?
Initially, there was a fair amount of skepticism when we spoke to investors. Some told us that we had to make a choice between investing for attractive returns and investing to make a positive difference; that we couldn’t do both. But now there’s a much greater awareness that this kind of investing is actually a great way to mitigate risk and identify opportunities. It allows you to invest behind some of the most significant long-term trends shaping our future, which means you can potentially tap into new growth markets and build stronger ties with key stakeholders – including customers, employees, suppliers and investors.
One important point to note is that different investors want different things; they have a range of both impact and financial goals and expectations. Some are obviously more focused on returns; others are more focused on impact. So, in order for this sector to keep growing and maturing, it’s vital that we keep developing new products that meet this range of needs.
What kind of experiences do you have related to impact investment returns?
Impact investing is not homogenous; it covers a spectrum of different investors with different impact and financial goals.
However, according to the latest research by the Global Impact Investing Network, the vast majority of impact investors are seeking market-rate (or close to market rate) returns. At Bridges, our asset base reflects that: of the GBP 1bn+ we’ve raised to date, most of that has been for funds targeting market-rate returns. That means we actively seek out sectors and business models where an impact-driven strategy can be a powerful driver of value creation – because it allows you to identify growth markets, tap into latent demand or gain a competitive advantage with your customers or other key stakeholders.
Here, we’ve shown over the last 17 years that it is certainly possible for impact-driven investment to achieve market-rate, or even above market-rate, returns – which is why we’re now on the fourth vintage of our Growth and Property funds. And it’s not just us: Cambridge Associates produced a benchmark index suggesting that impact funds have actually outperformed the market in recent years.
Another important feature of some impact strategies is that they are not correlated to the usual macroeconomic factors – so they potentially provide interesting balance and diversification for investors’ portfolios.
A good example is our pioneering social outcomes contract funds: these provide working capital and support for social programs supporting some of the most disadvantaged groups of people in the UK, which are commissioned by Government on a ‘payment by results’ basis. Our original fund was the first of its type in the world, so it was primarily supported by impact-driven investors who were prepared to tolerate a higher degree of financial risk. However, now the model has been established and proven, the second vintage has also been able to attract capital from a number of institutional investors.
As a fund manager, our role is to develop different strategies that meet the impact and financial goals of a range of different investors – which ultimately allows us to attract more private capital into this kind of investing.
How do you measure your impact? How important is impact measurement?
Bridges has always tried to remain at the forefront of impact measurement and management. For several years now, we’ve had our own in-house impact team, which works with the investment teams throughout the cycle to identify opportunities and optimize the impact of our investments. We’ve also been very open about sharing what we’ve learned with the broader market, in the hope of supporting its growth.
Most recently – as part of this market-building work – a Bridges team has been facilitating a sector-wide initiative called the Impact Management Project, which is trying to build global consensus around how to measure and manage impact. Ultimately, we think it’s bad for the sector if everyone involved has their own definition of what impact is, and their own way of measuring it. It makes it impossible for investors or other third parties to compare like with like. Far better that we build consensus around a single set of standards and benchmarks – so everyone can start competing on their actual impact, not their impact methodology.
For example, the Impact Management Project has been able to agree that there are 15 impact data categories that an enterprise should think about in managing their impact, with a focus on understanding the experience of the beneficiary of that impact. And if you have that focus, collecting this data shouldn’t necessarily be an additional burden; it should be an essential part of how you do business.
Michele’s Top 5 tips for a new impact GP
- GOALS. Have a clear idea of what your impact and financial goals are, and make sure you design a product that reflects the needs of the market (including both investors and investees)
- CONSENSUS. Align with the IMP’s growing consensus around impact management and measurement (rather than trying to re-invent the wheel)
- LISTEN. Collaborate with and listen to others in the sector who have learned from experience about how to invest for impact successfully
- PEOPLE. Hire brilliant people who believe in your mission, because ultimately this will be the key to success
- MISSION. Stay true to your mission as you grow (perhaps even locking it into the founding articles of your business, to protect it in perpetuity.
Who she is: As a partner in Bridges, she focuses on strategy, investor relations, public affairs and impact assessment.
Education: BA Honours in Politics, Philosophy & Economics from Oxford University, and MBA from Georgetown University, Washington, DC.
Earlier activities: Michele has over 25 years’ experience in international development and social finance. She began her career with International Finance Corporation and spent eight years with Shorebank Corporation.
Special: Michele was awarded an OBE in the 2018 Queen’s Birthday Honours list.
Bridges Fund Management
What it is: One of the first fund managers in the world to launch an impact-driven investment fund. Focuses on four themes: healthier living, future skills, sustainable planet, and stronger communities.
Who and where: Founded in 2002 by Sir Ronald Cohen, Michele Giddens and Philip Newborough. A team of 50 in London and 6 in New York.
Funds: GBP 1 billion capital raised, 14 funds, 160 portfolio investments