Matthew Weatherley-White is getting excited again.
His eyes flash behind square-rimmed glasses. His voice rises and quickens. He is talking about impact investing, and, no matter how many lectures at international conferences he delivers on the subject, he can’t help but get all geeked up.
Capitalism is neither good nor evil, he says. Why can’t we unleash capitalism – the machine that breeds innovation and creates wealth and jobs – to solve the world’s problems? Who says chasing profits must come at the cost of reducing emissions or paying fair wages or improving energy efficiency or feeding the hungry?
“Every investment has an impact – negative or positive – to a varying degree, so be intentional with what you’re doing,” Weatherley-White says. “We think the days of investing with no regard to environmental or social consequence, or for the activities of the business, won’t continue to happen.”
Impact investing was not part of the plan when Weatherley-White and five partners founded Caprock Group in Boise 10 years ago. They started building investment portfolios for families with at least $20 million to invest.
At first they approached investing traditionally. Weatherley-White felt something was missing. At a financial convention in San Francisco nine years ago, he connected with the concept of companies whose missions embraced social or environmental improvement. Back in Boise, his partners resisted at first but eventually agreed to try a new approach. Caprock’s early adoption of impact investing attracted clients who liked the idea of directing their investments to causes they support.
Today, Caprock has 70 clients and manages $3 billion in investments. Its impact-investment team manages $1 billion of that, making Caprock the largest advising firm to wealthy families in the nation, Weatherley-White says.
Aimee Christensen is founder CEO of Christensen Global Strategies, a Hailey sustainability consulting firm. An advocate for all things green, Christensen says she is she is shifting her family’s investments into impact funds and projects. Christensen, who is not a Caprock client, says Weatherley-White and his team are gaining national attention.
“It’s unique that we have someone the size and influence of Caprock in Boise,” she says. “They are one of the leading players, if not the leading player, for U.S.-based impact investors.”
Decker Rolph says he and his wife, Jessica Rolph, never expected to have the kind of money required to invest with Caprock. That changed when the Boise organic baby food company Jessica Rolph cofounded, Happy Family, sold to a European company for “hundreds of millions of dollars,” she told the Statesman after the 2013 sale.
The Rolphs are schooled in the world of finance. Decker and Jessica Rolph hold MBAs from business schools at the University of Michigan and Cornell University, respectively. While she helped build Happy Family, he worked as an associate at Highway 12 Ventures, Idaho’s only venture capital fund (disbanded in 2012), where he evaluated companies’ growth potential.
In 2010 he left to work for A10 Capital, a commercial real estate lending firm (story, page 34). He held several positions including fund manager, the job he held when he left A10 in June.
Decker Rolph says he met Weatherley-White in Boise and became friends. They spoke the same language about money, markets and making a difference.
The Rolphs were already interested in impact investing before they were millionaires. They became Caprock clients after the Happy Family sale and picked several causes they wanted their investments to support.
“Early education, equality in women’s issues, the environment, access to resources and food systems, general economic opportunity,” Decker Rolph says. “We’re still developing our emphasis.”
Caprock then researched companies working in those areas and performed a sort of double due diligence, Weatherley White says. It asked: Is an investment in a company sound? And does the company deliver on its social or environmental promises?
Caprock’s invests both directly into companies and through impact-investment funds, Weatherley-White says. The group monitors 30 funds and more than 40 direct investments.
Jennifer Leonard, vice president of Caprock’s impact-investment arm, says Caprock seeks out investments. Other companies in search of funds present themselves to Caprock as impact-investment opportunities, and clients suggest companies they find interesting. Of 50 or so companies that have approached or been suggested to Caprock, the group has liked only four or five enough to pursue due diligence reviews, she says.
“North of 80 percent are credible,” Leonard says. “But to get to that higher level where we want to invest our clients’ capital? That’s still a narrow band.”
Winnowing an unproven field to that narrow band is more time consuming and expensive than plugging clients into model portfolios, Weatherley White says. That is the cost of trying to establish Caprock as a destination for impact investors.
“We are part of this building,” he says. “We invest a lot of time helping funds come to market. Why do we do that? Because somebody has to.”
Many clients still maintain significant traditional investments. About 40 percent of the Rolphs’ investments are in nonimpact funds. Christensen says her family is still weaning itself from old-school investments that are falling out of alignment with her family’s ethos.
“My goal is to divest entirely from fossil-fuel industry,” she says. “We’re not there yet, but we’re working with our investment manager.”
Decker Rolph and Christensen both say their impact investments have performed about as well as traditional investments.
BORN OF DISILLUSIONMENT
Weatherley-White eats and breathes investing. Stand in the same room long enough and he’ll profess his love for the markets, for entrepreneurialism, for how ideas and money meet.
He turned those interests loose as an investor at Smith Barney in Boise for more than a decade. But by 2005, the work gnawed at him. Smith Barney both makes and sells its financial products to clients. Weatherley-White says that creates a conflict of interest for an investment manager trying to serve a client’s best interests.
“I grew less in love with it,” he says. “I felt I needed to protect my clients from the avarice of my employer.”
He and the like-minded Bill Gilbert left Smith Barney in 2005 and founded Caprock. Several years after as Weatherley-White talked his partners into trying impact investing, Leonard was tiring of Wall Street. She was a vice president at Morgan Stanley in New York City, and she was looking to get out. The profits-only Wall Street mindset left her cold.
She had previously worked in India as the chief financial officer of SKS Microfinance, which made small loans to help Indians start small businesses. With loans as low as the equivalent of $100 U.S., Leonard saw borrowers start goat herds and tailor shops, quickly transforming their quality of life.
“We’d go out to the field to the different projects they’d built,” she says. “You could see they’d started businesses and their children were now in school. And the lender was making money.”
She accepted the job at Caprock in 2013 overseeing the impact-investing portfolio.
“I firmly believe the capital markets are the easiest way to scale and the best way to create change,” she says. “This job balances both sides of that: the need for impact engagement, but also the financial analysis.”
Weatherley-White says there’s an undertow, not a sea change, toward environmental and social responsibility in investing. He sees it especially among Millennials, people now in their 30s whose faith in the old way of thinking was rattled during the Great Recession.
For proof, he points to the recent decision at Boston-based Bain Capital to launch an impact investing fund. Founded by former GOP presidential nominee Mitt Romney in 1984, Bain has never had a reputation as a socially or environmentally responsible investment firm, Weatherley-White says. Bain received more than 400 job applications for 10 positions in the new impact division, mostly from Millennials, he says.
“To draw a huge blanket over all Millennials, I think they have a different relationship with notion of meaning and purpose than other generations. The question is whether that will continue to resonate with them as they age.”
Today, students of Boise State University’s College of Business and Economics are introduced to impact investing concepts, says Angeli Weller, the director of the college’s responsible business initiative. Millennials are more open-minded about the notion that impact investments can return competitive profits, but she doesn’t expect Wall Street to change its approach.
“Culture change on Wall Street is going to take a millennium,” Weller says. “But I’m excited to have firms like Caprock change the way the game is played, to be a role model for others.”
Culture change was hard enough at Caprock. Weatherley-White’s pitch to partners to dive into impact investing started years before with another pitch met with skepticism: to pursue B corporation certification.
While not a legal designation, B-corporation status offers a seal of approval for anybody wanting to check a company’s sustainability bona fides. Companies applying for B-corp status voluntarily submit to a rigorous audit of a wide range of business practices, including energy efficiency, good and bad environmental effects, and employee pay and benefits.
Weatherley-White took interest in B-corps in 2006 at a finance convention in San Francisco. There he met founders of the B Lab, the nonprofit that created B-corp certification. One was Jay Coen Gilbert, cofounder of AND1, an athletic shoe and apparel brand once valued at $250 million. The other was Andrew Kassoy, a career private equity investor and former partner at a $1 billion real estate fund controlled by MSD Capital. The pair were looking for companies to form the founding cohort of B-corps.
Weatherley-White returned to Boise and tried to sell his partners on applying for B-corp certification. They were skeptical.
“The presumption around sustainability was a tree-hugging, empty buzzword,” he says. “It took six months to get my partners to agree.”
In 2007, Weatherley-White guided Caprock through the rigorous B Lab audit. Caprock scored an 82, surpassing the 80 needed for certification.
He assumed the qualifying score validated Caprock’s carefully crafted business practices. Scoring well for energy efficiency, for example, means a business is saving money on power. That’s a good practice.
Caprock partners read the audit score differently. “I presumed that our score would be a vote of confidence. It was the opposite,” he says. “It was almost as if applying the label ‘sustainability’ called into question some of our decisions.”
Weatherley-White swayed his partners to give the B-corp certification a try, opening the door for him to try to upsell them on the notion of impact investing. They were again skeptical, saying Caprock would not devote resources to impact investing without any client demand. Only two small firms were offering impact investing options – Imprint Capital Advisors and Threshold Group in Seattle – and they catered to different kinds of investors.
By this time, Weatherley-White was speaking at conferences about the potential of impact investing, acknowledging that Caprock needed a guinea pig.
He found one in 2007 when the Montana heiress of an industrial fortune asked Caprock to build her an impact portfolio. She wasn’t picky about which causes or projects her money supported, Weatherley-White says. She simply liked the idea of impact investing and told Caprock to make it happen.
“I came back to my partners and said, ‘We have a $50 million client, almost totally on spec,’” Weatherley-White says. “Let’s go! Let’s build this s---!”
Eight years later, Caprock controls the largest impact investment portfolio in the nation.
“In traditional investing, the Caprock brand is one of hundreds of firms that do similar stuff,” he says. “In impact investing, the Caprock brand is really valuable, and people know it.”
Bain Capital isn’t the only big firm jumping into the impact investing. In February, Reuters reported that BlackRock Inc., which controls $4 trillion in assets, launched its own fund called BlackRock Impact. In July, G oldman Sachs bought Imprint Capital Advisors and its $550 million impact investment fund for an undisclosed price.
Leonard says the big players are scrambling to offer credible impact-investment options. The Imprint purchase shows that Goldman Sachs felt it could buy expertise faster than it could build it internally.
“The big banks know they aren’t doing this the right way, and their clients are getting frustrated,” Leonard says. “The Goldman example is one way to solve that, by having a boutique, in-house group. You’ll see more big players in this space.”
So, who’s trying to buy Caprock?
“We get calls pretty regularly,” Weatherley-White says. “We have no interest in being acquired. If there were ever a transaction, it would be some form of merger with another family office in a geographical area where we don’t have a presence. I’m the second-oldest in the firm at 51. We are really excited about growing this business. We are not for sale.”
Today, only millionaire investors – such as Caprock clients – can invest in impact funds, Christensen says. If money continues to flow into impact investments and demand grows in lower-income brackets, investment firms will offer impact products to retail investors. That will be a tipping point, she says, though it could be five or 10 years away.
“You are going to see more and more demand for this,” she says. “More and more people are feeling like government and nonprofits can’t solve these challenges. We want our investment dollars and corporations to be in line with the things we care about.”