When TPG raised a $2 billion fund for so-called social impact investing in 2016, some on Wall Street questioned whether the investment firm could succeed — especially at that scale.
Two years later, that social impact fund, called Rise, is now 75 % invested, having taken stakes in companies ranging from online education start-ups to an Indian dairy company.
Now TPG is preparing to start raising a second Rise fund after receiving strong interest from investors, according to people with direct knowledge of the matter who were not authorized to speak publicly about the negotiations. The Rise team has also been in talks to take over the $1 billion health care fund run by Abraaj, the troubled Dubai-based private equity firm, these people added.
TPG executives said Rise’s largest achievement was figuring out a way to measure an investment’s advantages for society, while generating returns familiar to traditional investment funds. Bill McGlashan, the Rise fund’s chief executive, declined to comment on its actual performance or on the fund-raising efforts.
Mr. McGlashan said Rise looked at the same types of investments as TPG Growth — the fund known for its investments in prominent technology start-ups like Uber and Spotify — but took only companies that fit with its social impact requirements.
To evaluate potential Rise investments and measure their social impact, TPG created a complicated system with partners like the Bridgespan Group, a nonprofit consultancy, and KPMG to incorporate what the firm said were hundreds of academic studies.
The model tracks a variety of factors, from improving employment to reducing disease. In the case of EverFi, which produces social education content for universities and which the Rise fund invested in last year, it measures the company’s capability to raise students’ financial literacy and reduce alcohol abuse.
Mr. McGlashan acknowledged that the danger with social impact investing was “greenwashing,” or labeling investments as socially friendly that aren’t. Rise, he said, tests its measurements with outside organizations.
The model has helped separate Rise from private equity funds looking to make similar investments. DreamBox Learning, an online math education company whose curriculums adapt to individual students, chose Rise as an investor not just because of its team — which includes John Rogers, an investor who specializes in education companies, and Arne Duncan, the former secretary of education — but because of its capability to measure the company’s effects on society.
“There are other impact funds out there, but I haven’t seen anything else that has the same measurement,” Jessie Woolley-Wilson, DreamBox’s chief executive, said in a telephone interview.
While some of TPG’s biggest competitors have already jumped into social impact investing, including Bain Capital and KKR, TPG is considering making its impact measure available to draw more private equity firms into the field and to persuade more companies to behave in socially conscious ways.
“It is our hope that this innovation will have the second-order effect of encouraging our peers and leading institutions to increase their focus on impact,” Jim Coulter, a TPG co-chief executive, said in a statement.