Bain’s Deval Patrick mulls tying carry to social impact

Deval Patrick, a senior executive on Bain Capital’s impact investment fund, wants to find a way to tie carried-interest awards to the level of societal or environmental impact of such investments, he told an industry conference Thursday.

This would help give executives on the impact team incentive to achieve both strong financial returns and measurable environmental or social impact.

Patrick joined Bain Capital in 2015 and is one of the leaders of Double Impact Fund, which closed on $390 million last year.

Patrick, a managing director, said that the firm right now doesn’t have such a structure tying carry to ESG impact, but it’s something he’s been exploring.

As part of the firm’s determination of cash bonuses, Double Impact team members are subject to a qualitative evaluation of their contribution to the impact aspect of investments, he said on the sidelines of the conference.

“What we haven’t figured out is how to tie carry to impact,” he said, speaking at PEI’s 2018 CFOs & COOs Forum in New York.

One example he’s seen donates a portion of a team member’s carried interest to charity if he or she doesn’t meet certain impact goals. That particular model didn’t work for the Double Impact team when it went to market with its first fund, he said.

Double Impact Fund focuses on investments in lower-middle-market companies that will deliver a financial return along with a positive environmental or social impact.

Fund I so far has made three investments and has had no exits. The investments “are tracking well,” Patrick said at the conference.

He said the fund itself looks much like a traditional PE fund, with a five-year investment term and a 10-year fund life. The pool was built with a traditional structure deliberately, Patrick said.

“We have underwritten to … exactly the same standards as our large-cap PE fund,” Patrick said.

Patrick said he is aware that to some extent, the success of the Double Impact fund, along with other impact-focused funds in the market, will help sway the limited-partner community whether to commit to the strategy in the future.

Success, he said, would be 12 to 15 investments exited with superior returns and measurable impact in each of the areas on which the fund focuses.

The three investments Double Impact has iInvestmnvested in so far are: Living Earth, which recycles organic waste into mulch and compost; Impact Fitness, which operates health clubs in areas lacking such resources; and SpringWorks Therapeutics, which develops treatments for underserved patient populations.

Former Massachusetts Gov. Deval Patrick receives an honorary Doctor of Laws degree during the 364th Commencement Exercises at Harvard University in Cambridge on May 28, 2015. Photo courtesy Reuters/Brian Snyder