More private market investors today are seeking exposure to sectors and companies focused on sustainability themes and positive impact. However, the biggest obstacles these investors face in deployment are the lack of scale in higher-growth potential impact investing opportunities, an inconsistent universe of managers, and fragmented standards and reporting practices. Investors have both the capital and the will to invest in impact-focused opportunities, but they want to do so at scale with proven managers.
In 2019, we launched a strategy that we call the HarbourVest Stewardship Initiative, a customized solution that we built in response to growing client interest for accessing sustainability-focused investing through mainstream private equity channels. Through this strategy, we seek to create portfolios of companies from our direct co-investment and/or real assets deal flow that we believe (a) have a positive impact, and (b) meet our pre-defined performance criteria.
- Targeted return and investment selection rigor Designed to have same risk/return profile and rigorous due diligence process as all potential HarbourVest direct co-investment portfolios with diversification and scalability potential
- Purified exposure to sustainability themes Meets portfolio construction requirements and sustainability objectives
- Cost efficiency Co-investing typically comes at lower cost than traditional 2&20 private equity funds
- Differentiated access to experienced managers Distinct way to partner with GPs
- Diversification benefits Strategic complement to a core private markets allocation
We believe that co-investment gives investors a broad, diverse range of impact opportunities that keep the focus at asset-level, rather than being limited to the universe of impact funds currently available. Because of the sheer volume of deals we see each year, we feel are uniquely positioned to build something that is scalable, diversified, and focused on delivering both sustainability outcomes and returns.
Investment themes include health, education, environmental and sustainability, community, and inclusive finance. We consciously focused on investment themes where we have a strong pipeline. From there, we identified sub-goals within those themes that we felt best fit our definition and description of impact.
Conceptually, the Stewardship Initiative strategy acts as a filter on incoming deal flow; opportunities are subjected to the same rigorous due diligence process that we follow with all potential HarbourVest investments.
During the course of 2020, we built in rigorous processes to support the Stewardship Initiative and secured our first SMA clients:
The filtering process is supported by the five dimensions of the Impact Management Project, a global consensus on impact management and measurement norms. We have adapted the underlying data categories defined by the IMP to our filtering process and have built in thresholds that objectively qualify deals for the Initiative.
We mapped the Stewardship investment themes and sub-goals to the UN Sustainable Development Goals (SDGs). When Stewardship Initiative investments correspond directly to the underlying targets of the 17 SDGs, we will record this to better understand our own positive contributions to this vital effort.
The identification of opportunities is integrated into existing investment process. Our investment teams are trained to prepare an assessment of how the deal meets the Stewardship Initiative criteria, which is then reviewed at the investment committee and allocation stages.
Our impact thesis is that we can play a key role here as an influencer in private markets. As interest continues to build behind this strategy, the more we can actively source sustainability-themed opportunities through our GP network and drive engagement on impact reporting.