Category: Insights

Note: This article was first published in September 2019; it has been updated to reflect performance through June 30, 2020.

Within TIFF’s private equity (PE) program, we constantly strive to assemble a roster of best-in-class managers combined with attractive co-investments and secondaries that, together, we believe have the potential to meet our long-term goal of generating at least 500 basis points of outperformance vs. public equities across market cycles. We have historically surpassed this goal, thanks in large part to our ongoing ability to identify, and willingness to place capital with, relatively new managers that we believe have the potential to become top-tier groups—firms we label “emerging fund managers.” Private equity firms have a definable life cycle. In our view, smart portfolio construction therefore includes taking the pulse of, and when appropriate, investing in high-potential, emerging fund managers in order to continually refresh our manager roster and make sure every dollar we invest has the potential to grow several times over. Of course, TIFF pursues emerging managers focusing on marketable equities as well, and you can read more about that effort in a companion article. In private equity, the long-term nature of the strategy means the benefits of finding a strong emerging manager can deliver rewards for a decade or more. A mistake will be with you for that long, as well.

Now seems like a good time to share our view on where markets and investors are on the topic of Sustainable Investing today. To start, investor confusion around the terminology and why we should care seems to be ebbing. Yes, sustainability is still defined and perceived in myriad ways, but what it boils down to largely is the efficient use of resources. Any system—a company, an industry, a market, an ecosystem—requires resources to survive. To the extent those resources are harmed or depleted, the survival of that system is at risk. To the extent those resources are maintained or renewed over time, that system has what it needs to sustain itself at least and potentially even thrive. The sustainability movement is a call for change in how we manage our resources, in particular our environmental, human and social resources. Thoughtless exploitation of those resources can work for some period of time and for some portion of the population, but in the end that approach is unsustainable.

Sustainable investing is an extension of this concept. The basic idea is to invest in businesses that employ best practices around the use of all forms of capital: financial, environmental, human, and social. Those businesses possess the best chance not just to survive, but to thrive. And of course sustainable investing also means avoiding businesses with high costs and headline risks due to poor governance and exploitative behaviors. Such behaviors are less and less tolerated by consumers, governments, and regulators. Increasingly, these behaviors make them less attractive to investors, too.