Everybody experiences their ‘journey’ to discovering impact investing in a different way. For Sally McCutchan, it began with a sense of discontent at her role in funds management.
She knew something wasn’t right, and through conversations and introductions she found her way to, what was then, a new organisation called Impact Investing Australia.
Sally would go on to become CEO of that organisation, and to help grow the sector in Australia to capture mainstream interest, as well as institutional adoption.
Today, Sally is at a crossroads, as she embarks on the next stage of her career, launching Bridges Australia, a private equity impact investment firm that extends the reach of the highly influential Bridges Fund Management from the UK.
Not Content with the Status-Quo
Like many, Sally began her journey working in funds management for a big global bank. She was good at it, and it gave her the financial security she craved. But underneath all of that, there was a niggling urge that there must be another way.
All this capital, all this power; surely some of it could be directed to solving the many wicked problems that afflict our world. It was an opinion formed having spent some of her formative years living in less-developed countries.
“One of my frustrations in funds management was that you spend a lot of time working out whether to invest in a company, but you don’t spend a lot of time actually changing companies.” Sally says.
Sally had been working in Singapore for a consulting company, and as she returned to Australia, she took the opportunity to change-up her career trajectory.
“I thought, right, I really want to start to focus more on purpose, because a lot of the work I’ve done, while quite fulfilling intellectually, from a purpose perspective I felt it was lacking. And I thought I had a good combination of skills to do that.” Sally says.
Through fortune and serendipity, pathways upon which most find impact, she was introduced to Dan Madhavan and Rosemary Addis.
“They explained that they were working on a project’ we’ve got this working group, they said, and it’s related to trying to bring a wholesaler into the Australian market to support impact investing. And I had no idea what all that meant. But I said, Okay, I’ll volunteer with you. And that was the beginning.” Sally says.
“And so I worked on the wholesaler with a working group of just fantastic people, like Kylie Charlton, Andrew Tyndale, David Bennet and Steve Lambert.”
The Hope For an Impact ‘Wholesaler’
The world of finance is all about trust. Investors take positions, and while they know there’s no upside without taking risk, at the institutional level, the job is largely focussed on mitigating risk. You look back to see a track-record, and you forecast forward using models of the future.
Impact investing suffers due to it being an unknown quantity. It’s rare to have a track-record, and modelling is hard because few have gone before.
A major circuit breaker would be an impact wholesaler, essentially an impact fund seeded by the government. It would support emerging fund managers to get to their feet, and in the process, the government would have the potential to recoup their investment, and to multiply their impact through the magic of the market.
It’s a big shift, for both the world of finance, and the federal government, and for Sally, it offered a solution to pushing impact investing in Australia past it’s infant stage.
“I hadn’t really understood what it all meant. And the first thing I did was start reading about it. The first thing I found was social impact bonds. At that time, a lot of people were defining impact investing as social impact bonds, and they were very small.” Sally says.
“And as someone coming from a big public equities fund, I was looking at sub $10 million transactions thinking, how are we actually going to change the world doing things of this size?”
For Sally, support from a wholesaler would offer the valuable scale that was needed at this early stage.
“When I started taking a look at examples, such as in the UK, I thought this is a no-brainer. This joint focus, for investments that don’t compromise financial returns, this could ultimately be the future of investing, if we can take it beyond early scepticism. But then when I actually thought about the potential across the different types of investment, and did a bit more research on that, I was a research analyst so I can help myself, then it became clear that this could actually be really, really significant.” Sally says.
The Big Society Capital Model
The need was there, but we didn’t need to reinvent the wheel. The UK had already been through the trials and tribulations of linking various pools of capital and influence, and using market-based mechanisms to steer them towards solving social problems.
“Big Society Capital was created with money that came out of what was essentially a settlement of some of the issues with the GFC. Four of the big banks in the UK, along with the government, seeded Big Society Capital.” Sally says.
“It started with something like £600 million as its capital base, and that’s gone on to create around about £3 billion in terms of transactions and impact investments. So it’s had a strong multiplier effect.”
In Australia, the impact wholesaler was always going to be a question of government policy, which means it’s at the whim of policy priorities.
Sally explained that while there was interest, from then Treasurer, Scott Morrison, as well as Senator Jane Hume, it hasn’t yet pushed its way to the top of the priority list.
“We actually set-up a meeting for him (Scott Morrison) with Big Society Capital when he went to the UK, when he was treasurer. So it’s not that I think there’s disinterest, I just think it comes back to a matter of government priorities.” Sally says.
The Federal Government setup the social impact investing taskforce in 2019, given the task of producing a recommendation report on the state of the market, and what the government can do to support it. An interim report, released last year, hinted at the benefits of a wholesaler.
At this stage, we’re still waiting for the release of the final report to both hear the views of the market, and to understand the government’s appetite for the model.
Launching Bridges Australia
Sally wasn’t going to wait for the government to move, she saw the need to steer more capital to high-impact companies, and so in late 2021 she announced that her and some high-profile partners were bringing Bridges Fund Management to Australia, in the form of Bridges Australia.
Along with David Bennett and Peter Murphy, Sally would reach out to Michelle Giddens, a founding partner of Bridges in the UK, to float the idea, and they clearly offered a compelling case.
“We’re about to go and really hit the capital raising process. We’re seeking to raise $125 to $150 million. It’s pure private equity, focused on growth companies that have a purpose and make a profit.” Sally says.
“We’re looking at revenues of $5 to $50 million and investments of $5 to $20 million. We’re not doing venture, it’s slightly more mature companies. So companies that are already making a profit. And we see that there’s actually a real gap in the market in that space for impact as the market has evolved. We’ve got similar thematics, to the Sustainable Growth Fund in the UK, which are: sustainable planet, healthier lives, stronger communities, and future skills.”
The strength of the team comes from the experience of the partners, and Sally was eager to share the details of who she’d be going on the journey with.
“David Bennett is a partner, we worked together on the wholesaler. He used to lead debt capital markets at Macquarie. He was also involved with the Centre for Social Impact. He’s on the board of Palisade Impact, and AquaSure. And now he’s also Export Finance Australia’s Deputy Chair.” Sally says.
“Many people would know Peter Murphy. He used to be the CEO of Christian super. So he was one of the first people to bring impact into Australia.”
“Also Paul Evans, he has 30 years of private equity experience. So he’s the hardheaded commercial private equity guy in the mix.”
“And then finally, we’ve got Sabina Curatola. We work together at Impact Investing Australia, and she’s very strong on the impact side. She’s actually now part of the Bridges global impact team. So they have regular meetings, and we have access to all their templates, documentation processes.”