This month we were fortunate to have the opportunity to showcase Purpose Capital by tapping into the minds of Stuart Pearson and Nick Pacey. Duke Euphrat had the pleasure to video interview Bill Murphy, Executive Director of Purpose Capital, to discuss his passion for impact investing, degrowth economic opportunities, impact measurement and management, and more!
Introduction
Every couple of months IIN plans to tap into the minds of impact investing managers pioneering the impact investing space in New Zealand to share key insights with the IIN community. The purpose is to showcase how funds are strategically thinking about impact investing and demonstrate unique techniques and thought processes to demonstrate impact, meet financial returns, and foster a credible investing practice.
This month we were fortunate to have the opportunity to showcase Purpose Capital by tapping into the minds of Stuart Pearson and Nick Pacey. Duke Euphrat had the pleasure to video interview Bill Murphy, Executive Director of Purpose Capital, to discuss his passion for impact investing, degrowth economic opportunities, impact measurement and management, and more!
Background on Purpose Capital
Purpose Capital is a collaboration between the New Zealand business, investment, and philanthropic sectors. Combining the power of the commercial with the expertise of the philanthropic, Purpose Capital brings new resources and capital to projects and organisations working toward social and environmental solutions.
Purpose Capital is one of the largest New Zealand private impact investment funds. We are founded on a principle that we can effect change through well-run commercial investments that deliver impact as well as financial return.
Purpose Capital made its first investment in 2020 and has since made several others in expansionary businesses and asset-backed projects which address its four challenge areas of affordable housing, environmental degradation, climate change, and inequality.
Impact Investing for Growth Staged Impact Funds
We invest in two different types of companies. First, expansionary stage companies with a proven track record of success, limited technical risk, and future cash flows with which we have a high degree of confidence.
Second, we invest in projects with significant asset backing. A prime example is our investment into Lodestone Energy which, upon completion, will be 500 hectares of solar arrays over five sites.
These companies all tend to be institutional-level investments, which have reduced risk compared to a more early-stage focused impact investor. They often require a larger quantum of investment capital. Because of this challenge we have developed a co-investment model so that we are not restricted from great investments by our own fund constraints.
Showcasing Investments and Opportunities
If an opportunity requires an investment over and above what our Fund is able to commit to then we will open the opportunity to investors to invest alongside us as part of a syndicate. We will generally take on the role of lead investor and complete due diligence, valuation work, term sheet negotiation, and closing on behalf of the syndicate of investors. This gives co-investors the expertise, access, and deal flow of opportunities they might not otherwise have. It also allows our existing Limited Partners to invest above and beyond their Fund investment into sectors they want to allocate more into. For outside investors its sometimes their first impact investment so co-investment provides them a firsthand look at what impact investing is and how financial outcomes can be achieved alongside social and environmental returns. There is also the potential for the reallocation of capital from traditional investments to impact investments, which is appealing.
This allows the impact investors to have a larger shareholding than we otherwise would. This could be the difference between having an impact-oriented director on the board or pursuing more impact outcomes. It also allows us to draw upon the considerable expertise that could be within our investment syndicate to strengthen the investment further.
Through demonstrating the effectiveness of our approach, Purpose Capital aims to increase the amount of capital invested in impact investments from asset and fund managers as well as private and philanthropic wealth. By leading investment opportunities, we provide confidence to other investors to invest alongside us in impactful companies and projects.
Re-designing strategies associated with impact measurement and management
Being as rigorous in the measurement of impact as in the measurement of financial performance is one of the key ‘pillars’ that distinguish impact investment from responsible, sustainable, ESG investing. So, just as in the conventional investment sector, it's important to adopt internationally agreed measurement frameworks. Purpose Capital uses the Impact Management Project (IMP) framework and IRIS+metrics.
As direct investors into companies we develop a deep understanding of the impact potential of our investments to shape the impact, influence its achievement and adapt it as the project/company advances. IMP provides a framework but the important work of identifying the most appropriate impacts, how and over what time frame they will be achieved and appropriate measurement is done in concert with the project/company on a deal by deal basis.
While honouring values common to all of humanity we recognise the special values lived by indigenous cultures which have often been lost or downgraded in our world today and which will be key in enabling systemic impact. Purpose Capital recognises the living, indigenous Māori culture of New Zealand, and aspires to bring these values into its work and investments while respecting Māori values have a specific cultural expression and practice. We seek to deepen our understanding of living Māori values particularly when we are investing along side Māori investors or into Māori investment opportunities
Lastly, given our government is one of the few around the world to recognise GDP growth is not a proxy for human or environmental wellbeing we reference the New Zealand government’s Living Standards Framework as appropriate.
Conclusion
Impact Investment as a sector is becoming more mature, with institutions such as asset managers and Kiwisaver funds now becoming interested in investing in what was previously a space invested in by early adopters, such as philanthropic organisations or values-based entities and individuals. The level of environmental and societal change needed will require significant levels of capital so these larger investors are critical.
With this maturing market comes some opportunistic organisations looking to greenwash. We must be cautious when assessing any “impact” claims that the core criteria are applied; intentional and measurable social and/or environmental impact alongside positive financial returns. Anything else is greenwashing and trying to turn impact into another marketing buzzword while continuing on with business-as-usual.
Purpose Capital now have the majority of our first fund invested, with a strong pipeline of opportunities to get us to fully invested. We are open for expressions of interest into our second fund, which will continue to invest in high-quality institutional-level impact investments across New Zealand.
The IIN would like to thank the Purpose Capital team for their time in being IIN's second showcase. Their respective expertise, insights, and experience in the impact investing community is invaluable.
Lastly, if you are a fund manager looking to demonstrate the impact your investments have and want to be part of IIN's showcases please reach out to IIN Manager, Tan Huynh (tan@impactinvestingnetwork.nz).