This conversation between Maya Chorengel, a managing partner at The Rise Fund, and Alexandra Nee, partner and co-lead of the Impact Investing Service Line for McKinsey’s Private Capital Practice, was recorded on November 10, 2023. It was part of McKinsey’s Women in Private Equity Global Forum, which was held virtually, with an audience of 140 women investors from more than 60 firms across North America. The following is an abridged transcript.
Alexandra Nee: Today, I’m speaking to Maya Chorengel. Maya is co-managing partner at The Rise Fund, a series of multisector global impact investing funds managed by TPG that currently total more than $8.8 billion in AUM [assets under management]. Prior to that, Maya co-founded Elevar Equity, was managing director of the Dignity Fund, and invested for Warburg Pincus. She also co-authored the article “Calculating the value of impact investing” for Harvard Business Review.
Welcome, Maya. We are thrilled to have you join our Women in Private Equity forum. For context, many of the women joining today are investors in private markets; some are already in impact investing. And many, myself included, are currently outside observers excited about potentially getting into impact investing. Could you tell us a bit about how TPG’s Rise Fund came to be? What led you personally to impact investing?
Maya Chorengel: I came into TPG in 2017 as the first dedicated individual to launch what became The Rise Fund and is now one of the world’s largest impact investing platforms at $19 billion.
I started my journey in impact investing about 13 years prior after I left Warburg Pincus. I had a personal interest and curiosity about whether I could use the skills I had learned in private equity and investing to invest in companies that were explicit about creating good in the world. I thought I had seen enough situations where it was possible to take a business approach or a commercial approach to solving big problems.
Fast-forward to 2016 and impact was blossoming in the venture space, but at the time, TPG recognized that this was a cottage industry that wasn’t really scaling. But TPG also saw that there were interesting growth-stage impact companies to invest in, that it was important to invest with values, that it was important to stay innovative, and that it was important to invest in trends that might push the world forward over the next few years.
I was one of the few individuals who grew up in private equity but made a leap into impact investing. And I was one of the early leaders in that space proving through a venture-stage fund that we could achieve full risk-adjusted financial returns while investing exclusively in companies that were doing good. I was able to bring those two things together within TPG, backed by the leadership of the firm to do this work. It was indicative of TPG’s character, the problem-solving, innovative approach.
Alexandra Nee: You mentioned a bit about the industry overall, but I would love to get your thoughts on the state of impact investing today. Where are we right now, and how have things shifted in the past several years?
Maya Chorengel: It has certainly gone through a lot of growth and change.
The term impact investing was coined back in 2007. The term was used at that point to describe early efforts, such as the one I had at Elevar, that were attempting to use the investment toolkit and private capital to do good in the world. At that time, most of the funds were on the emerging-markets side and were less than $100 million in average AUM [assets under management]. The first fund I ran in impact investing was a $7 million fund. After that, I ran a $24 million fund, then a $75 million fund.
Most of the funds were investing in the venture category. Many of them were investing in the emerging markets, and institutional investors had not entered the category as LPs because the funds were not large enough for them to be able to pay attention. Many institutional investors can’t invest less than $20 million to $50 million, and you can’t do that in a $100 million fund because you don’t want to be an outsize portion of the capital.
Importantly, many institutional investors had not entered the space because there wasn’t a sufficient track record on financial returns. As fiduciaries of pension funds and sovereign wealth funds, institutional investors were not able to invest in a category unless they could demonstrate to their investment committees that they could generate full risk-adjusted returns with no compromise.
Impact investing has grown tremendously since then. Bain started a fund called Bain Double Impact at the same time as TPG. We were the first two private equity funds to come into the market. The Rise Fund’s first fund, at $2 billion, was four or five times larger than the largest fund that had been raised in impact investing up to that point. Bain’s fund was a US-focused effort and smaller in scale. Ours
was a global effort.
We had many of the top institutional investors from across the United States, Canada, and Europe invest with us. All of them were first-time entrants into impact investing because TPG committed to bringing the same investment underwriting team and standards as conventional investing to impact investing.
So, since 2017, which was the watershed moment when Bain and TPG came into the market, more private equity firms have come in. And that was a core part of our thesis—to show that impact investing could be done successfully at scale. The market used to be venture-based. It now has growth equity and is moving into buyout equity investing.
The other seminal trend is that the category has changed from what I’ll broadly define as multisector. Back in 2017 at The Rise Fund, we were investing in social categories such as healthcare, education, and financial services. We still do, and we invested on the environmental side in what was historically considered clean energy. The environmental side is now called climate investing and has expanded exponentially.
What we’ve seen over the years, and the direction in which we’ve led the market, is a move from venture to growth to buyout and now into infrastructure and public equity. There’s a proliferation of asset classes and institutional investors coming into the market. More private equity firms and large alternative investment firms are launching different strategies, but there’s tremendous growth, especially on the climate side.
Alexandra Nee: That’s helpful context. As we think about more folks playing in the space, does that change TPG Rise’s approach to finding good deals? Where do you see the most potential for the sector, given this increase in competition?
Maya Chorengel: Capital has definitely flowed in. More firms have launched initiatives, but I would say that we are still at the early stages of development of the market. Competition per se isn’t at all fierce.
There is an industry network called the Global Impact Investing Network that tabulates how much capital is flowing into impact investing. The firms that responded to the surveys in 2017 said they had about $95 billion in AUM dedicated to impact. Those same firms today are investing roughly $200 billion. That’s a 20 percent growth rate over the last five years. But if you contrast that $200 billion against what is stated in the United Nations Sustainable Development Goals [SDGs] as the capital needed per annum to drive commercial solutions to solve the big problems of the world, we need roughly $4 trillion a year to invest in climate solutions, education solutions, and healthcare solutions to meet the UN SDGs by 2030.
The gap between available capital that’s dedicated to impact and needed to drive solutions is still quite large. Most of the competition, if we find it, is still from mainstream investment funds, not dedicated impact or climate funds. There’s also a growth and buyout layer in which former energy funds that were more fossil fuels- or emissions-heavy are converting to climate investing.
One of the hopes we had at TPG was that others would follow us into impact investing. Part of the curation role of funds like ours is to say, “Here’s where it is possible to drive full risk-adjusted returns while investing in companies that are doing good.” Commercial capital is not a silver bullet that solves all problems, but where you can find it, it is more abundant than philanthropic capital or development aid, and we should put that capital to work.
Alexandra Nee: One of the things I’ve noticed and gotten a lot of questions about is that recently, terms such as ESG [environmental, social, and governance] or DEI [diversity, equity, and inclusion] and even impact investing have become a bit politicized. From your vantage point, how, if at all, has that affected the sector—or deals or funding?
Maya Chorengel: It is unfortunate that we live in a world where so much has become weaponized or politicized. The anti-woke, anti-ESG movement that is happening in certain quadrants is concerning because I think that the movement is emotion-based and not fact-based.
The way we approach the market when talking about ESG or impact is to put our heads down and let the work speak for itself, which has always been our modus operandi. We do unapologetically talk about the impact that our companies generate. We put out an impact report that is very extensive and contains our methodology and analysis. We look at every company and calibrate their potential using our internal methodology. How much impact has this company generated over the year—and cumulatively since we have invested? That analysis is attested to, which is the functional equivalent of being audited by KPMG. Importantly, we ground our impact analysis in data, research, and evidence.
Politicization does occur in other geographies as well, but it’s not weaponized as much as it is here in the US. ESG is fundamentally about good governance and just doing business well, but it has become politicized. So our approach has been to put our heads down to do the work; to be objective; to use data, research, and evidence; and to let the work speak for itself rather than get on a soapbox and pontificate.
Alexandra Nee: For the women today who are looking to advance to the top levels of their firms and possibly even within impact investing, do you have any advice or thoughts on your own journey?
Maya Chorengel: Two streams of thought: one is that I grew up at a time when all my mentors were men. There was one woman who was a VP when I was an investment banking analyst who was very much a mentor, but she was not a senior leader.
What I’m pleased to say is that today I have deep relationships with my peer group of women. I happen to have been lucky enough to go to business school with a strong group of women who have risen to senior levels at private equity firms, venture firms, hedge funds, and investment banks. That peer group and that support group is incredibly strong and important. I would say to cultivate not only mentoring relationships but also a group of friends and a cohort of peers.
The second thing I would say: I thought that the key to success was behaving like my mentors, who were all men. It only came to me later that the whole point is not to be like them but to be myself, and that I would be most powerful if I was most authentic to myself. Have the courage to embrace who you are and don’t think that in order to be successful, you have to be like everyone else in the room. Historically, that room has been made of up of mostly white men, but thankfully we are beginning to see that change.
Alexandra Nee: Now for questions from the audience. Maya, how do you see the impact investing industry evolving? Where do you think the market is heading?
Maya Chorengel: The market is still in early stages, but it is starting to mature. I do think that the preponderance of capital is going to aggregate toward the climate side. We are seeing different asset classes and different kinds of companies emerge: you have venture, you have growth equity, and you have infrastructure. We’re starting to see credit funds form for climate. There are also public equity climate-only efforts. Because climate solutions are more fixed-asset and capital heavy, more capital is going to flood into that area, and you’re going to see an ability to invest in it from different products.
The social side is growing more modestly. This is partly because social solutions, such as edtech, fintech, and healthcare technology, are more capital-light business models. But also, investors today find it easier to understand climate. Social interventions require more geographic specificity or sector specificity to appeal to what investors care about, which makes them more complicated, whereas the climate story is quite simple, so that area will be easier to grow.
I think a lot of us have an obligation to redefine and recast the narrative around social. A lot of human problems—social equity, et cetera—derive from whether people have access to quality education, quality jobs, and financial stability. It’s just much more complicated to define and express, and the industry needs to do hard work to simplify the narrative so investors know how to invest in it. Again, our experience is that there is a massive business opportunity for companies that are creating scalable solutions to bridge these access gaps. Investors can share in their growth and success from both a financial and an impact perspective.
Alexandra Nee: One follow-up from the audience: as the industry continues to mature, how do you see the returns evolve compared to non-impact-investing private equity? And if they’re similar, do you think all private equity firms will start to target impact opportunities as well?
Maya Chorengel: One of the myths we’re still debunking is that investing in impact is by definition concessionary from a return perspective. We need to show that when you invest well—with a strong impact methodology and understanding of the sectors and types of companies you’re investing in—you can find opportunities in which the business itself drives great financial returns, which in turn drives impact. It’s complicated because the financial track record is still emerging. So we need to show the marketplace where those financial returns are possible, then do the hard work to invest.
Those of us who are in this space believe that there are tailwinds that could potentially drive alpha for impact relative to other investing. Take climate as a category: there are strong tailwinds behind it, both because of the societal need and because government and regulations are paving the way for the transformative solutions we need for our climate objectives.
Those of us who’ve been in climate investing for a long time can identify business models that work. How to derisk technology, how to scale the technology, how to bring product to market in the right way: these are all the core things you do when you build a business, but you have to have technical knowledge that is different from what other investors might have.
You can actually drive potentially superior returns because of the market factors if you are early in a market and have differentiated domain expertise. Economics will tell you that the return differential will narrow over time, but there is a window in which you can genuinely drive alpha relative to other private equity return profiles.
Alexandra Nee: Thank you for joining us, Maya. We could have talked to you for twice as long and still had questions. I can’t think of a better person to chat with us about impact investing.
Maya Chorengel: Thank you, Alex and McKinsey, for hosting this forum for women investors. Take care.
For more information on the work of McKinsey’s Women in Private Equity Global Forum, visit “Women in private equity” on McKinsey.com.
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