How an impact investment firm co-founder sees the future of capitalism
A full five years ago, the CAPROCK Group surpassed $1 billion in impact-oriented assets under management. In the process, the firm committed its own resources to field building. It seeded and anchored first-time funds. It developed iPAR, a tool that helps clients understand the impact they’re catalyzing across their portfolio. And it’s repeatedly demonstrated that it’s possible to generate market rate returns by investing for impact.
Matthew Weatherly-White, Caprock co-founder and managing director, is the principal architect of the multi-family office’s impact investing platform. He serves as a strategic advisor to several impact investing funds, and he recently was honored as an industry pioneer.
Weatherly-White spoke with Bard MBA student Emma Jenkins about Caprock’s history in the field, how Caprock became a founding B Corp and what he sees as the future for capitalism.
Emma Jenkins: Caprock is a founding B Corp. In fact, you became a B Corp even before you started impact investing. Can you tell us more about that?
Matthew Weatherly-White: We launched in 2005 and we didn’t really start doing impact investing until late 2007. The politicization of terms like "sustainability" and "environmental stewardship" is so profound, and the fear that B Corp would start talking about things like gay marriage or abortion rights was so entrenched, that as a group we couldn’t get there. Eventually we got over that hump and became a founding B Corp in 2006. That pre-dated our commitment in impact investing.
On many levels, Caprock is an exemplar of the kinds of businesses that need to become sustainable and responsible. We don’t self-identify as a responsible company; we’re not out there pounding the pavement, saying, "Hey everybody, be like us." We’re the opposite — we’re sort of invisible in that world.
We’re such a conventional firm, and yet we map so well to the way B Lab thinks about sustainable business. We believe that every employee should have healthcare, that we should provide coverage for our employees. We believe that every employee should have skin in the game, that every employee should have equity ownership in the business. These are just core beliefs.
Jenkins: What is Caprock’s business model?
Weatherly-White: When we first agreed internally to start dedicating resources to an impact investing platform, that agreement rested on four critical pillars:
1. We wanted to build portfolios that, from a risk perspective, credit perspective, duration perspective, geographic and thematic exposure perspective and most important, financial return perspective, replicated our conventional portfolios. We felt that, if we couldn’t do that, then in some way we’d be potentially guilty of malpractice. We had to see a replication of our existing investment strategy in the impact world.
2. We needed to demonstrate that there was market appetite for this investment strategy, so we needed to land one or two large clients to validate the commitment of resources.
3. We needed to be able to participate in a way that allowed us to structure the funds so they’d start looking like investments we’d want to make because we knew that the absorptive capacity really wasn’t there at the time.
4. We needed to be able to, at some point, deliver consolidated impact performance reports of the same quality as our consolidated financial performance reports.
Jenkins: How did you start out choosing your Impact investments?
Weatherly-White: It’s a little bit humorous in hindsight, but initially, if you slapped the label impact on it we were probably going to look at it. In fact, you were probably going to come to us because we were so forward by saying, "Hey we want to build this discipline, we want to be investing in first funds, we’re not afraid of innovative strategies."
So we saw everything. We spent a lot of time with these teams developing term sheets and investment strategies and helping them with their reporting and thinking through the metrics they’d be tracking. It was a pretty big commitment from our side to create the absorptive capacity for the capital that we fully expected to flow . . . eventually.
Which gets us to how we make the investment selection. Initially, we built two totally different investment teams. We had our traditional investment team, and we built out our impact investing team. We thought that it was going to be a really different discipline — that somehow impact investing was going to be this weird beast that was going to require really unique specific skill sets to really understand and do well.
Every investment had to have on the front end an impact component that we assessed for viability. We’d then turn it over to financial due diligence — we wanted to make sure it was a reasonable investment and that the strategy was coherent. Then we’d layer on a pretty rigorous impact assessment from a geographical and thematic perspective that would allow us to put a framework around all of the metrics that we wanted them to track and report.
Jenkins: What’s your vision for the future of capitalism?
Weatherly-White: The metaphor that I would use is that capitalism is an operating system — it wasn’t handed to us carved in stone tablets. It’s much like a smartphone. You might not understand how a smartphone actually works, but we all understand the need for periodic upgrades. It’s an operating system challenge.
I think the more we understand about climate change, the current political environment notwithstanding, more indefensible it becomes to continue to use the operating system of capitalism as if the negative consequences of climate change don’t exist. The question is not is capitalism good or bad, or is it an inexorable wealth concentration mechanism? Those are not the right questions. The question is to what end do we seek to orient this optimization machine?
Right now, it’s optimized for one thing: financial profit. Why not optimize it for environmental sustainability, or gender and race inclusion? There’s no reason that it can’t be. Those are metrics that are just as viable as free cash flows.
This Q&A is an edited excerpt from the Bard MBA’s Sept. 6 The Impact Report podcast. The Impact Report brings together students and faculty in Bard’s MBA in Sustainability program with leaders in business, sustainability and social entrepreneurship.