TPG Sun Qiang: Capital is good, and it is time for impact investing

Looking back at the upcoming year of 2020, the spread of the new crown epidemic around the world has brought earth-shaking changes to people's lives. The private equity investment industry is also changing, showing a new investment trend.

On the one hand, online fields such as online education and mobile office, as well as medical and health fields, have become more and more favored by investment institutions. On the other hand, the pandemic has also brought opportunities for social impact investment to grow in China. More and more investment institutions have begun to attach importance to social responsibility, using influence as one of the evaluation indicators to consider the value of long-term investment.

Sun Qiang, managing partner of TPG China, is a veteran of the US dollar PE pioneer in China, and a pioneer and advocate of impact investment in China. Over the past three years, Sun Qiang has stepped into the game and led TPG's The Rise Fund in its ongoing impact investing practices in China.

Founded in 1992, TPG is one of the world's largest investment firms. As early as 1994, TPG established NewBridge Capital to enter the Asian investment market. In the Chinese market, TPG has invested in Shenzhen Development Bank, Li Ning, CICC, United Family and other enterprises.

TPG's Reth Fund is the world's first large-scale pure impact investment fund. In the past three years, Sun Qiang has led the Ruisi Fund to invest in projects such as Zhonghe Rural Credit, Du Xiaoman, Green Kemeng Group, and Fine Arts Education, and continues to seek more opportunities in the fields of inclusive education, inclusive medical care, and inclusive finance.

"Many people have a misconception about impact investing, believing that the financial returns of impact investing will be unsatisfactory. This is not the case, and it is possible to achieve both righteousness and profit. Sun Qiang said in an exclusive interview with 21st Century Business Herald. At the same time, he has also actively "endorsed" impact investment on many occasions, calling on everyone to collect firewood.

The capital for good should also be the capital of patience

The definition of "impact investing" first began in a brainstorming exercise in 2007. At the time, the Rockefeller Foundation brought together investors, entrepreneurs, and philanthropists at the Bellagio Center in northern Italy to discuss how to pursue social and environmental benefits through more efficient allocation of funds.

After more than a decade of development, people's understanding of impact investing has been deepening. The prevailing view is that impact investing is an investment method that aims to generate positive social and environmental impacts and takes into account certain financial returns, and can be invested in different business entities such as companies, organizations or funds.

According to the annual report of the Global Impact Investment Network (GIIN), as of the end of 2019, the 294 institutions surveyed in the report managed a total of about $404 billion in impact investment assets.

With nearly $100 billion in assets under management globally, TPG is a pioneer in impact investing. It established the Reth Fund in 2016, with an initial phase of $2 billion. The Reth Fund has a luxurious team lineup, with members of the Founders' Board of Directors including eBay founder Jeff Skoll, Bank of America Chairman Brian Moynihan, queen queen of Jordan queen Queen Rania and others. The advisory team includes former U.S. Secretary of Education Arne Duncan and former Yale President Rick Levin.

The impact investing platform is one of the important reasons why Sun Qiang joined TPG. A pioneer in China's private equity industry, he joined Warburg Pincus in 1995 and single-handedly built its China business. In 2015, he left Warburg Pincus, where he had worked for 20 years, to start a career in agriculture. This entrepreneurial experience made Sun Qiang feel that more capital must be mobilized to bring positive changes to society.

In 2017, Sun Joined TPG, opening a new frontier in China's impact investing space. "In China, we pay special attention to inclusive education, inclusive health care, inclusive finance, and hope to find good investment opportunities in these areas. We should support enterprises that protect the environment, enterprises that bring preferential treatment to farmers and low-level consumers, and support those enterprises that bring more positive energy to society. Such capital is the capital of goodness. Sun Qiang told 21st Century Business Herald.

But at the same time, this capital should also be the capital of patience. "Because companies with this type of capital investment are unlikely to become unicorns in two or three years like high-growth Internet companies, they need more patience and care from capital." He said.

Economic and social benefits – fish and bear paws can be both

The history of impact investing in China is not particularly long, and many people have a misunderstanding of it, thinking that the financial returns of impact investing will be unsatisfactory. However, Sun Qiang stressed to reporters that this is not the case, and it is possible to achieve both righteousness and profit. "The essence of influence is both righteousness and profit. Only with 'righteousness' is influence, and only with 'profit' can it be sustainable. Sun Qiang said. The Wise Fund invests in the principle of grasping both economic and social benefits.

On December 24, The Wise Fund announced that it had led a $210 million Series D financing for Fine Arts Education. Sun Qiang said that an important reason for attracting the Wise Fund is the high degree of compatibility between the two sides in terms of inclusive education. "Inclusive education is one of the key directions of The Wise Fund's investment in social impact, and aesthetic education is an important part of inclusive education."

Sun Qiang said that with the help of science and technology, art treasure education provides a variety of online forms, effectively extending the inclusive scope of aesthetic education in time and space, providing a wider range of aesthetic education opportunities for children, including rural children, and also building a big stage for art educators to display their talents. Such a business model can not only obtain economic benefits, but also have a positive impact on society.

Another project invested by The Spirit Fund this year is also an example of a combination of social and economic benefits. In September, The Vision Fund announced its investment in Hong Kong-based Green Monday. The company has just opened the mainland's first plant-based meat one-stop experience store in Shanghai, which is committed to developing and selling innovative plant-based protein diet products, combating climate change and promoting low-carbon living. This not only promotes health but also protects the environment, bringing good social benefits. At the same time, Green Alliance also has good economic benefits.

Zhonghe Rural Credit is an example of TheRis Fund's practice of impact investing in rural services and finance. It is an institution focusing on the rural market, mainly providing small and micro loans and agricultural assistance services to individual farmers and small and micro operators.

In 2018, Ruisi Fund led the 600 million yuan C round of financing of Zhonghe Rural Credit. After the completion of this round of financing, TPG became the second largest shareholder of Zhonghe Rural Credit. Sun Qiang said that as China's largest and most widely covered rural microfinance platform, most of the microcredit of Zhonghe Rural Credit is extended to the poorest rural areas in China, which is the only way for many rural families there to obtain loans. The social benefits generated by Zhonghe Rural Credit are self-evident.

For the financial return of this investment, Sun Qiang said that due to innovation and improved operational efficiency, Zhonghe Rural Credit has achieved sustainable profitability.

No quantification, no form – the measure of influence is key

Measuring financial returns is a breeze for investors, but measuring social benefits is a challenge. Sun Qiang said that the lack of measurement standards also restricts the systematic development of domestic impact investment. "Impact investing is a science, not putting a label on itself is an impact investing. Now the domestic influence market has just begun to have a heat, and it is inevitable that there will be a mixture of fish and dragons. ”

TPG and Reth Fund are at the forefront of the industry in this area. To be able to systematically measure social impact, TPG and the Wise Foundation spent several years creatively developing a formula that uses mathematical algorithms to measure the impact of investments and translate them into monetary measures.

This methodology was developed by Y Analytics, an independent research institute founded by TPG, in collaboration with top universities and think tanks around the world, such as Harvard University and the Brookings Institution, and the quantified impact is audited by an external accounting firm. Reth Fund evaluates both financial and impact investing when reviewing every investment. After the investment, the project is also regularly evaluated and a third-party report is issued. With quantitative measurement, the social benefits of investment are clearer.

"The capital for good plugs in the wings of scientific tools and will certainly be able to fly higher in the sky of China's impact investment." Sun Qiang said.

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