Assessing the Impact: Trends and Transactions Where Mission Meets Margin

by: Andrea Mainelli and Nick Kind | Blog |Sep 3rd, 2020

Tyton Partners has been deeply involved in the global education and training ecosystems for many years, frequently operating at the intersection of mission-driven private capital and philanthropy. While education has not been as top-of-mind for impact investors, family offices and foundations as other sectors, it is now becoming increasingly prominent. The pandemic and the movement to dismantle systemic racism have spurred an urgent and renewed focus on the role of philanthropy and impact investing, both to fill gaps left by near term funding deficits and — in some cases — completely to reimagine both education and employment in a post-COVID world through a more equitable lens.

In an ongoing series of newsletters, we intend to report on the changes we see across the education-to-employment impact investing and grantmaking ecosystem. We will dive into the big challenges impact investors are tackling, and explore the nuances between what they say they will do and where they actually put their dollars. In addition, we will keep track of other notable transactions across different impact investing classes and highlight important grantmaking and philanthropic efforts around education and the future of work.

Want to start the conversation and learn more about our work? Contact us to schedule a time in the coming weeks.

Best wishes,

Andrea Mainelli, Senior Advisor

Nick Kind, Senior Director EMEIA

Join us:

SOCAP Radical Collaboration Webinar: Sept. 10th, 11:30 am EST
“How Impact Investing Can Help Get People Back to Work”  Register here.

ASU/GSV (Sept. 29 – Oct. 1) and SOCAP (Oct. 19 – Oct. 23).
We are sponsors and speakers at both events and look forward to engaging with you there

COVID-19 Response Funds – how long will this last?

Unsurprisingly, some of the biggest news in the philanthropic world over the past six months was sparked by COVID-19. Large foundations were the first to step up with significant grantmaking to fund basic necessities for needy populations most hurt by the pandemic. While strictly speaking not impact investing, it is important to note that this immediate response most likely diverted attention from longer term initiatives and absorbed some impact investing capacity as foundations grappled with how to support grantees / program-related investments weathering the COVID storm. We anticipate that education and employment initiatives will rise higher up the agenda as learners return to school for the Fall and the economic effects of the pandemic hit employment numbers as furlough and other support schemes lapse across the developed world.

  • Five of America’s major foundations committed to spending more as a consequence of the pandemic. As the New York Times put it, “The decision by the five influential foundations […] could shatter the charitable world’s deeply entrenched tradition of fiscal restraint during periods of economic hardship”.
  • MacArthur Foundation was a key donor to the Chicago and Illinois COVID Response Funds and the Rockefeller Foundation donated $50 million over several initiatives, some global, for pandemic assistance. Other leading foundations quickly established emergency grantmaking funds – often close to home — to provide support to non-profits that supplied food, shelter, rent and healthcare to those in high need.
  • The GIIN, supported by a group of leading foundations, coalesced to organize the Response, Recovery, and Resilience Investment Coalition (R3 Coalition), a market-wide reaction to fill financial shortcomings related to COVID-19. The goal is to streamline impact investing efforts that will address large-scale social and economic consequences of COVID-19.
  • The Bill and Melinda Gates Foundation committed $250 million to global health efforts to curb COVID-19, while also leveraging the resources of its Strategic Investment Fund.

From an education-focused perspective, Imaginable Futures – a venture of the Omidyar group – and Lumina Foundation continued its launch of the RISE PRIZE. Focused on innovative solutions dedicated to supporting students who are parents while they pursue a postsecondary degree, the RISE PRIZE increased their initial $1M in grants to $1.55M in response to COVID-19. The 15 winners – including six higher education institutions – were announced in July and will use the funds to solidify and validate programs and attract additional funding and partners.

Philanthropy steps up efforts to dismantle systemic racism

After the shock of the pandemic, the murder of George Floyd sent further seismic shocks around the world, soliciting a massive outpouring of collective grief and anger, as well as collective action. In July 2020, Mackenzie Scott announced that she donated $1.7 billion as a part of the Giving Pledge, an initiative encouraging the world’s wealthiest people to redistribute their wealth. Among the 116 organizations that Ms. Scott gave to were six historically black colleges and universities (HBCUs) that received more than $120 million combined as outright donations. For many of these institutions, it was the largest single gift that they had ever received. The funds will help HBCUs provide more scholarships and make curricular and infrastructure improvements in order to boost enrollment and student outcomes. Other non-profit organizations that were beneficiaries are on the front lines of tackling societal inequities. Most importantly, a majority of these organizations are run by the individuals who are representative of the marginalized groups they are seeking to serve.

IFC halts investment in K-12, fee-charging institutions

The IFC announced in May that it was halting its investment in for-profit, fee-charging private K-12 institutions, citing a study that showed that over a ten year period the investments yielded little return and actually harmed communities in which the institutions were located. Some external stakeholders had been driving home this point for years with the IFC, saying private actors were not promoting quality and access. It remains to be seen whether this action has a ripple effect throughout the impact community considering IFC’s considerable heft and influence: the controversy over where return-seeking private capital should play a role in the public provision of education is not going to go away any time soon.

Impact investing in education – has its time come?

Over the past decade, education has increasingly become a focus of impact investors. The GIIN reports that of the $221B assets under management for impact investors in 2020, approximately $5.8B (~2.5%) was directed toward education around the globe (note: if you follow the link, you need to explore in Key Finding 1). Despite this relatively low level of AUM flowing to education, 40% of impact investors allocate funds to the sector. Traditionally the purview of governments, the private sector has weighed into the education space to solve its most pressing problems, but impact funds, family offices, and foundations are increasingly becoming more significant players, with a range of strategic impact objectives and  financial return expectations.

While COVID-19 certainly put a damper on the impact investing market, some notable transactions did occur in the first part of the year. We are looking for activity to pick up in the second half of this year as funds and investors grapple with the challenges presented by COVID-19 and are thinking about the future of work and transformative changes in education. Selected transactions included:

  • Edquity, which calls itself a “tech-enabled anti-poverty company”, raised $2.4 million in January as a part of a seed round. It helps educational institutions identify at-risk students and delivers emergency aid in order to prevent drop-out, which will be even more critical in the coming months.
  • Pearson has announced its inaugural GB£350m 3.75% 10-year education-linked “social bond” supporting the provision of online learning services, further education, and vocational qualifications. This is the first time we have seen debt issued by a public education company carry an impact label: while the coupon is not specifically linked to outcomes, the use of the funds is ringfenced to particular initiatives within Pearson. Let the debate about use of the words “social bond” begin.

* We define education impact investors as entities which are investing for impact tied to positive outcomes while at the same time expecting some financial return

 

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