A Climate For Change
8 March 18
8 March 18
Ian McLennan, Partner and Investment Lead at Triple Point, speaks to Intelligent Partnership about how financial returns can be maximised through a new Impact EIS Service.
Triple Point is an investment manager that specialises in private equity, property, venture capital, leasing and lending. The business, which has been actively investing private equity capital for 15 years, regularly works with NHS counterparties, and has invested in areas such as clean-tech and energy efficiency. The firm has recently launched its Impact EIS Service to capitalise on this experience and add to its offerings for investors.
What drove the introduction of Triple Point’s Impact EIS?
Financial investing in socially impactful companies is something we’ve been developing for three years. We had already arranged funding using SITR (Social Investment Tax Relief), however the rules to qualify for SITR are too restrictive for many private investors. We decided that EIS was a better way to provide investors with financial returns that also meet specific social impact criteria.
Impact investing is a large field in the wider investment world, but in the EIS and VCT space, it hasn’t had much attention before this, the first EIS growth service to focus on social impact. There are plenty of fund managers, particularly those looking at listed equities, that incorporate specific environmental, social and governance criteria in their mandates – by, for example, screening to exclude investments that are not socially responsible.
Positive Impact investing has been by led by private funds, such as family offices and pension schemes, that have been involved in this for a decade or so, with significant momentum in the last few years. These funds are actively investing in companies that align with their values, not merely by screening out socially underperforming companies. This is impact investing and is what Triple Point is focused on.
By selecting companies that not only meet growth EIS-qualifying financial objectives, but also meet a social impact threshold (using our proprietary scale), Triple Point’s aim is to deliver better financial returns as well as positive impact.
The Triple Point Impact EIS is a managed service, targeting significant capital growth by investing in fast-growing, innovative companies that have a positive impact on society and which qualify for EIS tax reliefs.
We’re looking to raise an initial £10m into the new EIS service. Investors will be diversified across 8-12 growth companies and we will only invest in revenue-generating businesses in order to provide evidence that the underlying business model works. We will provide scale-up capital to businesses that already have a proven product, that is commercially viable and may bring a new technology to bear on an existing market.
While we think it makes better sense to exclude start-ups and seed investments from the Service, we will retain the ability to make smaller tactical investments into particularly compelling pre-revenue opportunities, up to a maximum limit of 10% of the portfolio.
There may be a perception amongst investors that social impact investments generate lower returns. Do investors have to be altruistic to invest in this area?
We don’t believe there’s any trade off between impact and getting financial results – in fact it can be the reverse. A number of independent academic studies have concluded that there’s no loss of return from investing in businesses with social impact, and this has also been our own experience. We believe that investing in good businesses can be good business. The private sector is increasingly measuring and reporting the impact it makes (see for example Unilever’s annual report) as they recognise that customers, staff and investors want to engage with companies that share their values.
So no, investors don’t have to be altruistic at all, although we believe those that are may find our approach appealing.
How do you select potential investments?
We’re primarily seeking strong financial returns from a portfolio of growth companies, but they must also have a social purpose, as measured against specific criteria we have developed.
These target sectors include the environment, health, children and young people and addressing inequality, such as the poverty premium.
I expect that two thirds of the funds will end up invested in the environment and the healthcare sectors, where we have long standing connections and a lot of experience, and we are meeting many terrific, innovative British companies. These include, for example, the application of digital technologies, in combination with expert human support, for the prevention of Type II diabetes, and an internet platform that makes it easier for families and local authorities seeking help with domestic care services to reach a wide range of care workers in a well governed environment.
We’re continually receiving business plans from companies that are active within our selected sub-sector. Once we’ve assessed a plan and a business proposition to be financially attractive, we’ll decide whether the business has the ability to make a meaningful impact, and the potential scale of the impact.
Triple Point has six of its 21 strong investment team dedicated to EIS investing.
We also have specifically assembled a three person technical advisory committee for the Impact EIS Service, who have been selected for their growth capital expertise, and experience and insight as entrepreneurs.
Who do you expect will be the target demographic of these investments?
While there’s a correlation between younger investors and those prioritising social goals, in fact, our target demographic is all regular growth EIS investors. We can provide added appeal for those investors who recognise that their capital can be used responsibly and successfully to deliver impact, both in terms of generating solid financial returns as well as making a positive contribution to society.