Private Equity Impact Investing
March 09, 2023
In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Radhika Shroff, managing director, private equity impact investing at Nuveen, a global investment manager and wholly owned subsidiary of TIAA. Radhika shares with us her outlook for private equity impact investing, including the greatest opportunities and challenges, her experience being a woman investment manager in the industry, and more.
Absolutely. So to kick off the conversation, tell us about Nuveen and how you got to where you are today.
RS:Sure. I'm a Managing Director with Nuveen's Global Private Equity Impact Team. I've been working in impact ESG and sustainability probably for about 15 years, I think before it was even an industry, starting my career in sustainability focused on financial inclusion and emerging markets. My background is in investment banking, commercial banking, and so really it was a way for me to pivot my career into something that really aligned with my values while also driving commercial capital to some of the most pressing issues of our time.
At Nuveen, we focus on investing in climate and inequality in a commercially viable way with the goal of delivering risk-adjusted private equity returns to our investors. And as I said, we believe that delivering these returns to our investors is the only way we ourselves can be successful, but more importantly, the only way we can catalyze the quantum of capital we need to address, as I said, two of the most pressing issues of our time.
Our strategy is to take significant minority positions in businesses, anywhere from 10% to 40% of a company, sit on the board, lead the strategy amongst shareholders, and really work with companies during our hold period to drive financial and social returns. Nuveen itself is the wholly owned asset manager of TIAA, which is essentially a large pension fund that manages the retirement funds of over five million end clients, and responsible investing is really in the DNA of our parent company as well.
EMS:Great intro, Radhika. So since the topic of today's conversation is PE impact investing, love to hear your outlook for the space this year.
RS:Yeah, sure. Listen, these are very uncertain times. I think anyone who picks up a newspaper or watches TV knows that we have volatility in the market, we are facing inflation, we have a potential looming recession, we have the Ukraine War, and we have the uncertainty around China.
From a PE perspective, we are seeing, however, an opportunity, an opportunity to invest in companies at great valuations. Not 2021 and 2022 valuations, but valuations that we see as much more realistic for driving the types of returns that we're seeking to drive. We're also focused on investing in companies that have a real product market fit, that are providing a real service, that have not only revenue traction but profitability, and companies that are leveraging our capital to really scale and focused on putting key structures in place to be able to protect our downside.
But more broadly, in terms of our outlook for private equity, private equity in general has performed well through various market shocks because it's patient capital with flexibility and active engagement from private equity professionals. And I think this really helps companies through times of stress. And again, as I've said, having been in the market for decades, we have seen this through cycles.
The challenges, however, that we're trying to address, which are climate change and inequality, can be exacerbated during times of market disruption, which we believe makes impact investing even more relevant, resilient, and investible today. Having just experienced a global pandemic, we have seen the resilience of the companies that we've invested in because they're truly providing basic services to underserved populations that are going to need these services through cycles.
To really answer your question, we are seeing the uncertainty, the volatility and some of the valuations coming down, we're really seeing this as an opportunity to be able to still invest in great companies with patient capital.
EMS:Radhika, indeed, it is very uncertain times. So with that being said, what are some of the more specific opportunities you see in this space? Love to hear your thoughts.
RS:A lot. But I will focus on one which I think is on everybody's mind, and that's climate change. And what we're seeing in the market is that people are really focused on climate change through investing in various asset classes. Governments are focused on it. Individuals are trying to do their own individual job to help mitigate climate change. But it is a global issue. We don't believe investors are treating it as a global issue. And we're seeing most investment dollars being geared towards relatively unproven climate technology companies in developed markets only. And these are companies that could be either pre-revenue or pre-profitability. And we think that there's a great deal of opportunity to commercially address climate change in emerging markets and developing markets as well while building climate resilience and adaptation and delivering strong returns for our investors.
To give you an example, two years ago we invested in microfinance institution in India called Annapurna. Annapurna's core business is to serve female entrepreneurs, two million female entrepreneurs in rural areas with working capital laws so they can grow their businesses. And this in and of itself is a great impact-oriented business. The more these women are able to grow their businesses, the more they're able to send their children to school and the more they're able to bring their families out of poverty. And so that in and of itself was a great investment.
However, the way that we think we can engage with the management team and the other shareholders is to say, "These women live in some of the most climate vulnerable areas in the world, and how can we make them more climate resilient through your existing distribution network to these two million women?" And so we're doing things like integrating our geodata with their geodata to see if we can reach more customers through risk-based pricing. We're doing things like working with them on early warning systems that are data-driven for these clients.
And so the way that we're looking at our investments is not only how can we help mitigate climate, but how can we drive climate adaptation and resilience amongst vulnerable populations as well.
EMS:Great. And Radhika, on the other hand, what are some of the greatest challenges you face in this space looking ahead and why?
RS:So as I noted, there's no doubt that climate and inequality are inextricably linked. And as impact investors, I don't believe that we can address one without addressing the other. As I said, climate is a global issue. It is not just an issue that we're facing here in the United States. It's not an issue that people are just facing in Australia. We're all going to be facing it. And we do not believe that enough capital is flowing towards investments that address both climate and inequality on a global basis.
For example, for every dollar that a development finance institution has to invest, and typically DFIs invest in emerging markets, institutional investors, those that invest globally, have $900. And so there's a real opportunity to catalyze at least some portion of that $900 for every dollar that is going to emerging markets to providing commercial solutions to solve these problems.
And as the impact team at Nuveen, which is a global institution with global institutional relationships, we believe we can play a critical role in catalyzing some of that capital by, and I'm repeating this because I think this is really important, by really proving the commercial liability of businesses globally so that we can get those institutions to invest and impact.
EMS:Absolutely. Radhika, to shift gears a little bit. Being a woman manager, you're clearly an inspiration. Love to hear your thoughts on that as well.
RS:Yeah, this is a topic that's near and dear to my heart and probably near and dear to most women in industries that are where there are very few women. Frankly, I believe it is really important for the world's future for women to manage more of the money in this world. And not just household expenses or retail investment, but large pots of institutional dollars, and importantly, to be in the rooms where investment decisions are being made.
The good thing is is I have found that impact investing attracts more women than traditional PE. And this is all anecdotal, but that's what I've seen. And I believe this creates a virtuous cycle for recruitment, again, which is great to see. I think having women at the table also drives just more rounded decision-making, maybe more values-oriented decision-making. And we know from our portfolio companies that when women are in charge of money, women use their money to invest in productive things, like education, like businesses, and they're very fiscally conservative.
I'd really like to see more of this at the institutional level. And I will say that even in impact investing, as the ticket sizes get larger, there are fewer women in the room. I think a values-oriented, rounded decision-making for institutional dollars is going to be incredibly important for our future and for our children's future. And I think women contribute that to the investment decision-making.
EMS:Radhika, we've covered a tremendous amount of ground today. Wanted to see if you have any final thoughts you'd like to share with us.
RS:Yeah. I think impact investing is, as I said in the beginning, an incredible way to drive change in this world through commercial capital. And I believe deeply that the heft of commercial capital is what's needed to drive this change and to drive positive outcomes.
I know that there's been a lot of noise in the market lately around greenwashing and who's actually doing impact in ESG and who's just saying that they're doing impact in ESG, and that troubles me a bit because I think it sullies the work that the true impact investors are doing and we're constantly having to kind of prove that we really do care about social and environmental outcomes.
Having said that, I think that the discipline that we're having to place on our impact investing is making us even more aware and more focused on ensuring that we are actually driving the kind of impact we say we're going to drive.
EMS:Well, Radhika, I wanted to thank you so much for sharing your perspective with our listeners. And thank you for listening to the EisnerAmper Podcast Series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.
Transcribed by Rev.com