Private equity giant Bain Capital develops social impact investment business

Bain Capital, the $75bn (€70bn) US private equity firm founded by former US Presidential challenger Mitt Romney, is developing a social impact investment business after identifying interest from university endowments, public pension plans and some sovereign wealth funds.

The new business will be headed up by former Massachusetts Governor Deval Patrick, who during his time in office launched the state’s first social impact bond (SIB) aimed at reducing reoffending for young men.

Deval, who will serve as a managing director of Bain Capital, told Bloomberg that he would spend several months working on a business plan before building his investment team.

Deals will focus mainly on the US, and the new business is expected to pursue investment opportunities with significant measurable social impact in education, health, energy, environment and neighbourhood development.

Deval is no stranger to making bold moves in the growing social impact investment space. Last year, Massachusetts made the largest-ever financial commitment by a US state to a SIB, or pay-for-success initiative.It has committed to up to $27m to investors if measurable outcomes to reduce recidivism are achieved over a seven-year period. The SIB attracted $18m from a range of investors including Goldman Sachs, who invested $9m, and will get 5% interest per annum if the SIB is a success, translating into a $3.2m uplift.

Massachusetts also secured a first-of-its kind $11.7m grant from the US Department of Labor to support the $27m initiative. It has estimated that savings to the state in successfully reducing reoffending could range from $1m to $45m. And unlike similar SIBs deals in the US, where a foundation has provided a financial guarantee, the Massachusetts deal has no protection, with investors losing all their capital if targets are not met.

Bain Capital anticipates that Deval’s new role at the firm will see him provide similar innovative capital solutions with measurable social impact across different asset classes, including private equity, public markets and real estate.

Deval, who succeeded Romney as governor of Massachusetts in 2007, was also assistant attorney general of civil rights under President Bill Clinton. He has also been general counsel to Texaco Inc. and Coca-Cola Co.