First, it must be said, it’s good to start any endeavor with a lot of money.
Liesel Pritzker Simmons got it coming and going, though she had to fight in court a decade ago for her share as an heiress to the Hyatt Hotels fortune. Awarded a reported $500 million, she and her husband Ian Simmons, heir to the family that built Erie Canal locks and founded retail giant Montgomery Ward, founded Blue Haven Initiative, an early impact investment family office.
Before becoming a social impact investor, Pritzker Simmons had a short and successful acting career under the name Liesel Matthews. (She played the daughter of President Harrison Ford in the 1997 action thriller Air Force One and was in the 1995 hit, A Little Princess. Seriously, you can’t make this stuff up).
She set aside acting to take on the family legal battle in 2002. After a few years at Columbia University and the favorable verdict, she decided that her financial good fortune had to be put to work doing something more than simply making her wealthier.
By co-founding Blue Haven Initiative, Pritzker Simmons helped fuel the sustainable investment movement, which as of 2018 had over $502 billion in assets under management, according to the Global Impact Investing Network. Pritzker Simmons spoke with Karma Contributing Editor Michael Moran.
Michael Moran: Liesel, you’ve been building an impact portfolio since well before most people knew what “impact investing” meant. How have the reactions from Wall Street and other financial circles changed since you began the process of rebalancing toward impact and ESG in 2010?
Liesel Pritzker Simmons: It’s remarkable to me how much progress has been made in a relatively short period of time. When I was starting to build out our impact portfolio, my husband, Ian Simmons, and I had a mission to look at 100% of our assets and knew it would take us a while to get there.
We wanted to examine everything and ensure that what remained had an intentional positive social or environmental impact. But we were told by traditional investment advisors that there was no way to do that without losing money. “There’s not enough product, and you’ll give up returns,” they said. The message we got was: “That’s a stupid way to make investment decisions.” That has changed.
Michael Moran: What did they want you to do instead?
Pritzker Simmons: The professional advice was to just go out and make as much money as possible and then give a lot of it away. That definitely wasn’t what we wanted to do. In fact, that’s pretty inefficient. Without an intentional approach to investing, you will likely make a huge mess in your investment portfolio that you then have to go and clean up with your philanthropic dollars.
In our view, that’s a waste of time and money. Why not align investing and giving? So we wanted to make intentional, informed investments that had a positive impact—or that, at the very least, weren’t making a mess of the world. We saw this as a way to make our philanthropic dollars go a lot further. This sounded pretty radical to some people a few years ago. Now it’s catching on.
Michael Moran: Why has it changed? And where are you seeing the most compelling evidence. Because, as you know, there are plenty of men in pin-striped suits who mock the whole impact/ESG space.
Pritzker Simmons: It has changed for two reasons. First, there are more funds that have been around long enough to have a track record of positive returns, and people can point to those. That’s very important in clearing up what I call the “returns misconception.” Many more people now accept that you don’t have to sacrifice financial returns to do this kind of investing. In fact, in many cases, having an ESG overlay dampens portfolio volatility.
The other big change is that more millennials and ultra-high-net-worth investors want these kinds of products in their portfolio, and this increased demand is getting attention from financial institutions. Today there are more firms offering impact investing strategies. It’s no longer a fringe concept.
Michael Moran: Do you have a favorite study that lays out the “impact is better” proposition in what you regard to be an unassailable way?
Pritzker Simmons: George Serafeim, Professor of Business Administration from Harvard Business School, studies the materiality of ESG on public markets, and he has a ton of studies that link ESG factors in companies to financial outperformance. So he is a great resource. The USSIF (United States Sustainable Investment Fund) website has a lot of resources around this. So does the Social Investment Forum. On the private equity side, however, there is not nearly as much information. That’s a place where I’d like to see more.
Michael Moran: You’ve had a unique experience in that you’ve had to transform a portfolio that was structured in one way and through a very methodical system over the past decade, you’ve turned that $500 million toward impact and ESG investments. How are the returns versus what you would have expected had you not taken this path?
Pritzker Simmons: You know, we set our asset allocation, and then we set our benchmark depending on the asset class. That’s what we’re trying to beat: the classic, traditional portfolio managers return rate. If you look at the last two quarters, that’s been a challenging environment for active managers in public equity.
Generally speaking, all of our active managers are doing ESG active ownership, and they are consciously picking companies based on how they approach sustainability. And they have all outperformed across the board—not just the active management space, but their benchmarks as well. So we’re finding that some of these new strategies, particularly in a more volatile market, are helpful, paying off and resilient.
Of course, some things do pose a challenge. For instance, we have quite a bit of exposure to renewable energy in our portfolio, and a few years ago when oil prices dipped so did renewable energy prices. That caused us to take a bit of a hit, and we realized we had a little bit too much sector exposure. So this path can also open you up to a bit of overexposure in certain areas.
The bottom line is this: Traditional investing is hard, impact investing is also hard—but I’m very happy with the financial performance of our portfolios. And we set pretty high standards both on the impact side and what we expect out of it financially, and so, yeah, I’m glad that we’ve taken this path.
Michael Moran: Can you give me some specific examples of investments that you’re particularly proud of, especially in the private equity space, since that’s where ESG data falls down so badly.
Pritzker Simmons: We took up a portion of our private equity portfolio and carved out our own internal, evergreen, direct investment fund. This is focused on fintech, logistics and renewable energy in sub-Saharan Africa specifically. We look for early-stage companies in those sectors across the continent. We have a pretty heavy concentration of companies in East Africa but also some exposure to West Africa and southern Africa.
One company in our portfolio that we really like is a logistics platform for fresh fruit and vegetables and consumer goods in Kenya. They started by looking at the banana supply chain. And get this: A banana that is grown 50 miles outside of Nairobi might change hands up to 13 times before it actually gets sold. As you can imagine, the price goes up dramatically and the quality of the produce is pretty low by the time it gets to the customer. So the company has a logistics platform that just shortens that supply chain. It’s also more predictive about who needs what kind of goods, so they can help farmers plan.
Michael Moran: So that’s an efficiency play. You also mentioned renewables in sub-Saharan Africa. Can you tell me about an investment in that space?
Pritzker Simmons: In the energy space, we invested in a company called M-Kopa. It’s fairly well known in East Africa, where it’s the largest pay-as-you-go solar provider. It has connected more than 600,000 homes to affordable power. In a solar home, the system is a block with a solar panel, lights and a battery—one thing people use it for is to charge their phones. But M-Kopa figured out how they can finance this using mobile money, and so they’re able to go further afield and sell to customers in a more affordable way and provide light to people who didn’t have electricity. That’s a rather large market. We’re excited about that company, and it has been expanding.
Michael Moran: Outside being overweight renewables during the last commodity crash, were there things that looked good at first and turned out to be something to steer clear of?
Pritzker Simmons: We see a lot of products both on the public side and also on the private side that are kind of greenwashing. It’s a “trying to slap lipstick on a pig” sort of thing with some of these products. We try to steer clear of that.
On the private side, if we see entrepreneurs that are more excited about speaking on panels and winning awards than they are about actually going back to their country and running their business, that’s one thing we get really nervous about too. There is a lot of hype in this space—the challenges and accelerators and incubators and high profile this and that—and so sometimes it can be a distraction from the hard part, which is actually just running your company.
That’s one thing we have to be wary of. If a company leader has a lot of change-maker awards, and he or she is only 25 years old and their company is six months old, we get really nervous.
Michael Moran: You count as a pioneer in this space, so I would imagine you’ve become quite good at detecting when something is greenwashed. But ESG data suppliers don’t always paint a clear picture of a company’s core values and what might be in their supply chain. How do you handle all these signals?
Pritzker Simmons: You’re right to point out the data problem—particularly on the public side. There are very valiant efforts being made by analytics firms to try to get better ESG data out there. But when you have a point of view about what companies in certain sectors should be doing, you have to rely on your (fund) managers, particularly in the public market, to be able to parse data—good and bad—and develop a strong point of view and conviction around what companies are doing.
It often seems that in the impact investing space people want it to be easier. It’s like they want somebody to come out unequivocally and say, ‘this company is an impact play.’ It’s not that simple. ESG data is a starting point.
Michael Moran: Would you describe yourself as an active investor? Do you do get deeply involved in the companies you get involved with?
Pritzker Simmons: In the companies that we own directly in our venture portfolio, we are very engaged and try to be helpful investors by taking board space. We’re often the most flexible capital in that particular company, and so sometimes we will express that by doing debt financing and helping with bridge loans. We try to be as helpful as we can.
On the public side, when we work with a manager, some of them are pretty active. We do like managers who are actively trying to improve what companies are doing—not just buying a great company but taking good ones and improving them.