How She's Coaxing Hedge Fund Bucks to Solve Social Issues
WHY YOU SHOULD CARE
When a business can solve a social problem, the rest of us won’t have to pay for it.
By Steven Butler
Last year when Brenden Millstein was looking to expand his business, Carbon Lighthouse, he knew the project, which fights climate change, needed someone special — someone who didn’t care too much about earning a profit. So, hitting up the wife and daughter of hedge fund managers might seem counterintuitive, but that’s what he did.
Everyone knows what hedge funds are known for: making money. (Also, making money.) Call it capitalism distilled to its most potent essence, and hedge funders have done it superbly well for decades now, even with the market’s ups and downs. But Liz Luckett sees an untapped potential in these sharkiest of finance waters: do-goodery. And for the past three years, she’s run a group whose very mission, to meld philanthropy with hedge funding, would be seen by some as contrary to the laws of physics.
Even so, her efforts are gaining steam. Every six to eight weeks she calls together an investment committee that includes activist investor Bill Ackman of Pershing Square Capital — a billionaire in his own right — and Dave Hodgson of General Atlantic. They gather to pick apart proposals that Luckett puts before them. If she has her way, she’ll take these investors from their (understandable) comfort zone of generating profit — and find a way to create a revenue stream while doing something decent for the world.
When we catch up with her, Luckett is a tall, slim, soft-spoken yet straight-talking native New Yorker in a simple white blouse and black pants. At her shared office space in midtown Manhattan, we get her story: Steeped in hedge funds first from her childhood and then from her marriage, the lingo of these investors was just part of her life. After graduating Columbia University, she launched a business career of her own. If a theme runs through many of TSEF’s investments, it’s the use of data analytics to drive market efficiencies, something that Luckett learned 20 years ago at the Gartner Group, the technology research and advisory company where she conducted due diligence on the roughly 20 businesses a year that Gartner was buying.
Efforts to invest in and launch a company with partners fell through in 2000 amid the dot-com bust. And then, with a 10-month-old daughter, Luckett says she came to a realization: “I can’t do this, working all the time.” (Which, in her case, meant getting a regular sort of job, leading a data analytics effort at Citibank.) TSEF grew organically from a more recent gig, when Luckett was the director of impact investing at the Pershing Square Foundation, the charitable arm of Ackman’s investment firm. Pershing supported Echoing Green, a long-standing fellowship program that in turn once supported first lady Michelle Obama. Increasingly, Luckett found, fellows were coming up with business models that needed not philanthropic handouts but investment capital, among them Carbon Lighthouse.
Her model has led to a wide range of investments. There’s Pigeonly, for example, which provides cut-rate communication services to connect America’s roughly 2.3 million prison inmates with their families on the outside, or Clinicas del Azúcar (Sugar Clinics), which runs a chain of inexpensive, retail diabetes clinics in Mexico, addressing part of a global epidemic. “If they can show how to solve this problem, then everyone is interested,” says Luckett. Another company, PharmaSecure, operates in India and Nigeria, tracking unique ID codes on medicine so that consumers can verify a product’s authenticity via text message and avoid consuming one that’s fake, or even dangerous.
These days, Luckett is identifying companies trying to exploit market inefficiencies to the benefit of underserved populations, and making sure they can deliver. “She’s kind of the bad guy at first,” says Millstein. First she asks tough, skeptical questions, then she switches to partner mode. Frederick Hutson, the former prison inmate who runs Pigeonly, says Luckett recently advised against immediately jumping on opportunities to raise new investment capital, and instead encouraged him to continue growing the company. “She helped to bring some balance and clear thinking to it,” Hutson says.
Of course, not all early-stage investments can succeed. A Liberian manufacturing venture, for example, is teetering on collapse as a result of the Ebola epidemic disruption, underscoring the risks in this sector. Luckett herself is full of questions — about how to measure the impact or define the goal and how to scale the operation without making it unwieldy. Raising investment funds isn’t the hard part. “There are many deals, but not many good ones,” she says. Her first order of business is to establish a track record: “If we prove that this is successful, it will bring in many more people.”