Toussaint Bailey eyes 'impact 2.0' in launch of Uplifting's second fund

With a goal of $100 million in investments, Toussaint Bailey's Uplifting Capital launched its second private asset fund focusing on generating profits and promoting sustainable impact.

Amid a backlash against ESG criteria that has turned so political that asset managers are refraining from using that label or pulling back some of their products in the category, Bailey's firm and other impact investing practitioners are forging a different path based on their more direct approach in areas such as housing, the environment and economic development. Uplifting's first fund closed last year with $18.5 million in investments, and the target number for assets flowing into its second product includes $20 million in forward commitments from registered investment advisory firm and institutional clients, Bailey noted in an interview.

Uplifting Capital

The firm is trying to lead a movement of financial advisors and clients toward what Bailey called "impact 2.0." Distinct from philanthropic efforts to help people by sending clients' investment gains to charitable organizations or ESG screens that add or remove securities from portfolios based on selected criteria, impact 2.0 is seeking to drive financial return by solving complex challenges with the aid of "underutilized value-creation levers," Bailey said.   

"For us, that means really starting with the world's biggest problems. If you're looking for alpha or investment opportunities, you're looking for a big problem set," he said, noting that Uplifting has identified nine areas of impact concerning the environment, the economy and people's well-being. "You can go and look at the world's biggest problems and make a really strong investment case."

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Other impact funds are also attracting assets — even at a time of mounting closures of ETFs that use ESG methodology. 

Investors such as Wells Fargo, Truist, UnitedHealthcare and Kaiser Permanente deployed $135 million toward reducing homelessness through the Community Solutions Large Cities Housing Fund, a social-impact private equity fund that closed earlier this month. The fund invests in multifamily properties that set aside half their units for people exiting homelessness, with the other half as "workforce affordable housing," according to Dave Foster, president of BDP Impact Real Estate and the manager of the fund. Since its launch two years ago, the fund has invested in buildings with 1,155 apartments in six cities on its way toward an eventual goal of 2,500 units.

The potential appeal among advisors and their clients comes from being "open to hearing the whole of the opportunity" with an "understanding that the return is being measured in two ways," in terms of financial returns and impact, Foster noted in an interview. In some cases, that could mean "a little bit of a lower return for the investors," which makes it more important to be "really getting clear on what the impact is of that investment," he said. 

As a data-driven nonprofit organization that is part of the "Built for Zero" movement combating homelessness, Community Solutions and its investment fund are frequently asking themselves, "How do we get in front of more advisors with the opportunity to tell that story?" Foster said. "There's a glaring need in the market for convenings and forums to be able to bring these opportunities to investors, to investment advisors in a way that allows them to be educated on it and that doesn't feel like a sales pitch."

Uplifting is also driving investments in affordable housing, alongside eight other areas listed on its website. 

In the category of "people," the firm's products aim at "inclusive innovation, education and upskilling and health and wellness"; for the environmental goals, the company invests in "renewable and efficient energy, conservation and climate change and sustainable food systems"; and, in the economic realm, the funds seek to provide "financial inclusion" and small business incentives besides supporting the housing programs. As a means of identifying the potential investments, the company maintains a database of more than 1,500 private-market impact funds that enables the firm to identify, review, monitor and build portfolios.

Some examples of the impact of Uplifting's investments include a private equity buyout fund with a portfolio company that addressed its labor shortage and ramped up its production by opening employment to formerly incarcerated people, Bailey noted. Others revolve around women's health or communities that are "stigmatized by having fewer dollars" than others, he said.

"This thing could be looked at as altruism, if you're not looking at it right. It requires an opening of the aperture," Bailey said. "When you put dollars in these communities, the value that is there is unlocked, and they prove themselves to be profitable."

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Like many impact managers or shareholder activists who are continuing to bulk up their activities despite the negative headlines, he rejects the notion that they should be grouped together under the ESG label.

"Those are different animals from what we are, quite frankly," Bailey said. "In a lot of ways, we're an answer to those funds that people are running from."