Jeffrey Ubben’s new socially responsible investment firm, Inclusive Capital Partners, officially launches on July 1 — but the veteran activist investor told Institutional Investor it will not be just another ESG fund.
“ESG has hijacked the conversation by selling a data-driven, benchmark-hugging passive product,” Ubben said in an email exchange with II. “We will be deeply analytical about how the core business can accelerate a healthier planet.”
Inclusive’s mission statement goes further, declaring that ESG has been “productized, dangerously adding fuel to fire with regards to the funds flow[ing] into the same few over-owned stocks.”
Ubben left ValueAct Capital, the firm he co-founded 20 years ago, to start the new company. He describes Inclusive as a return-driven environmental and social activist firm.
It’s a remarkable about-face for the man who built ValueAct into one of the largest and best-known hedge fund firms by pressuring companies to make changes that benefit shareholders. But Ubben insists that at activist investing is entering a new era — one where society and the environment have replaced shareholders as the excluded stakeholders.
“Public market impact investing does not exist,” Ubben said in an email. “To some, impact means lower financial returns since E (environment) and S (social) is to be added to it. Impact to us means strategy change. Strategy change means excess return when the market is presuming the status quo. Companies will drive huge terminal value by using their incumbency to solve these E and S challenges.”
[II Deep Dive: Where ESG Fails]
Ubben said Inclusive will be “a very low management fee business” to align its interests with investors.
He plans to include about 12 stocks in the portfolio — similar to what ValueAct often maintained — with a goal of being a top-three shareholder in each stock. He also wants the flexibility to call and return capital, as well as do earlier stage deals with “mission-driven CEOs.”
The firm’s mission statement also stresses it will own the very companies that sustainable funds tend to avoid — including oil and gas, utilities, materials, chemicals and refineries, capital goods, food processing and food service, and for-profit education.
“These companies have the customer relationships, technology, work force, capital, and scale to positively impact the transition to a healthier society and planet,” the mission statement said. “By virtue of being incumbents and thus being perceived as part of the problem, so-called ‘legacy’ companies show the greatest potential to become part of the solution and to be re-valued.”
The ValueAct Spring Fund, ValueAct’s socially responsible fund launched in 2018, holds significant stakes in Nikola and Enviva, which Ubben said exemplify the strategy. Enviva is the world’s largest producer of sustainable wood pellets used by utilities transitioning away from coal and other fossil fuels to renewable energy sources as required by global energy policy mandates, according to a case study recently sent to ValueAct clients. Spring began investing in the company when it launched in April 2018.
Earlier in June Ubben was named to Enviva’s board of directors.
“Given the world’s commitment to phasing out coal and de-carbonizing our future, there are few companies better positioned than Enviva to innovate and deliver practical solutions to the environmental challenges we face as a society and create long-term shareholder value in this space,” Ubben stated in a press release at the time.
Nikola makes electric and hydrogen-powered trucks. It went public in early June when it merged with VectoIQ, a special purpose acquisition company (SPAC).
ValueAct Spring invested in Nikola when it was private, and Ubben joined the board at the time.
Ubben founded Inclusive along with George Hamel, a ValueAct co-founder; who will serve as chief operating officer; Lynn Forester de Rothschild, founder and CEO of the Coalition for Inclusive Capitalism, a charity that promotes economic and social inclusion; and Eva Zlotnicka, who had joined ValueAct in February 2018 to help run the firm’s new social responsibility fund, ValueAct Spring Master Fund.
Ubben pointed out in the email that two of the founding partners are women, noting that it sets up the firm’s succession planning. “[I would] like to see this be a women-led firm when I leave,” he wrote.
He also pointed out that four of seven board seats of public companies in Inclusive’s Spring Fund I are occupied by women — all first time board seats. “We’re growing the pool by doing, not talking,” he added.
The management company for the ValueAct Spring Fund is moving to Inclusive, which hopes to get consent from the limited partners to move their portfolios. They will serve as the anchor investors. Affiliated Managers Group (AMG), which held a minority investment in ValueAct, will be a minority investor at Inclusive, according to a press release.
The ValueAct Spring Fund currently manages $1.5 billion. It returned 30 percent net of fees last year.
Spring Fund I will partner with management and the boards of companies “whose core business seeks to achieve the reversal of corporate harm,” its mission statement said. “We will seek to make the markets work in a way that public policy and philanthropy have been unable.”