Huntington Capital: a thriving economy is built on dream jobs
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Version 0 of 1. At the heart of the American Dream – the idea that anyone in the US, by dint of hard work and determination, can climb the economic ladder – is the American dream job. This is, the kind of job that can become a career, the sort of work that provides employees with decent wages, benefits, training and opportunities to better themselves. It’s the type of job that underlays a thriving economy. It’s the type of job that San Diego-based investment firm Huntington Capital is trying to encourage companies to create. On the surface, Huntington looks like a fairly standard fund company. It manages three funds that have a total combined investment of about $210m, most of which comes from pension funds, banks, insurance companies, foundations and wealthy families. Huntington, in turn, has invested this money in about 50 companies since its launch in 2001. Like most of its peer funds, Huntington is also in search of impressive profits: the company aims to generate top-quartile returns, compared to similar funds. The company has delivered “low to middle double-digit annual returns” in its asset class, mezzanine financing, in which 10-12% returns are typical, says Tim Bubnack, a managing partner at Huntington. What sets Huntington apart is its commitment to have – in its words – “a positive impact on underserved businesses and their communities”. The company calls itself an impact investor, meaning that it aims to generate returns that are social or environmental, as well as financial. Rather than focusing on Silicon Valley startups, a fairly well-worn investment landscape, it helps finance established, small and medium-sized companies in California and the southwestern US. Most of its target companies sell goods and services to other businesses, like air filtration products, janitorial work and enterprise software. “We don’t want to give up return for the sake of impact,” Bubnack says. “We want both.” Social and financial value Related: In minivan-obsessed US, can the electric bike market get a jump start? As a rule, Huntington provides long term loans accompanied by warrants to purchase stock in the borrower, the right to receive royalty payments based on performance, or both. This financing model has become especially important since the 2008 recession, after which banks tightened credit standards and backed away from lending even to companies with solid financials. Huntington, as a result, has “lots of deal flow” and is able to be selective, Bubnack says. Things also look promising on the social side. Impact Investing 2.0, a two-year research study that looked at 300 so-called impact funds, identified Huntington as one of about 30 that delivered “exceptional performance”, which it defined as “meeting or exceeding the financial and social returns they had promised”. The report – which was conducted by the Duke University Business School, Impact Assets, a nonprofit financial services fund, and Pacific Community Ventures, a nonprofit that aids small business in underserved communities – found that “Huntington tracks and reports on impact rigorously, even more so than many funds that seek social impact above all else”. Creating the right kind of jobs A big part of Huntington’s social impact involves employment. Rather than pursuing the somewhat fuzzy goal of investing in companies that create jobs, Huntington seeks to work with companies that offer a living wage, health care benefits and growth opportunities to their workers, ideally in underserved communities. In its most recent impact report, Huntington says its portfolio companies employ 4,168 people, 63% of whom identify themselves as ethnic minorities and 43% of whom are women. Half of the companies are located in low- to moderate-income communities, and most of the workers live in those communities. Did Huntington “create” those jobs? Not really. Job creation is a slippery concept, as Morgan Simon of Pi Investments, a Huntington investor, wrote recently in the Stanford Social Innovation Review. New jobs – as distinct from jobs that move from one place to another, or one company to another – are created by innovation or increased demand, which is a function of economic growth. “Right now, the industry norm (for impact investors) is to count the number of jobs created,” Simon says. “It’s a virtually meaningless metric.” What’s more, supporting low-wage jobs can perpetuate poverty as opposed to fostering economic mobility. So Pi Investments, which invests on behalf of a member of the Pritzker family, and Transform Finance, a nonprofit that focuses on impact investing, are working with Huntington to see if the fund can focus on creating better jobs. They’d like to develop a “floor and ladder” approach to managing impact that would require that portfolio companies meet minimum requirements in five areas: living wage, health care, paid leave, opportunities to advance and employee ownership. Alternately, portfolio companies could show how they will achieve those requirements – after which they would then be asked to climb the ladder to do better. Related: Can the Bullitt Center prove that it pays for buildings to go 'deep green'? Outdoing the industry standard Kate Starr, former vice president of capital deployment at the FB Heron Foundation – another Huntington investor – said by email that Huntington is a “rare breed” because it invests in companies that create “better-quality jobs than industry averages”. Starr cited Native Foods Cafe, a chain of vegan-vegetarian restaurants whose workers, she said, make better than minimum wage and are often hired after long periods of unemployment. “Having sufficient income is important, having the opportunity to work again can be life changing,” said Starr, who now runs a consultancy called Starria, which helps people invest in what they believe. Craig Grimes, Native Foods’ CEO, said that investments by Huntington and a second private equity firm have made it possible for his company to expand beyond its roots in southern California. “That enabled the company to, essentially, double in size and create the national footprint that we have today, with 26 stores,” Grimes says. Road Runner Pharmacy, an Arizona-based pet care company that dispenses medications for dogs and cats by phone, has grown from about 50 employees to more than 200 since Huntington invested in 2009, Bubnack says. “They’re fabulous owners, good managers, who really care for their employees,” he adds. “They provide training and assistance for their people, and all the employees have health care coverage.” Bubnack doesn’t believe that impact investors, by themselves, can solve the problem of economic mobility in the US. “That’s more of a political issue,” he says, requiring investments in education, among other things. But Huntington has found that companies led by owners with strong values can provide good jobs, compete in the marketplace and deliver above-average returns. “If people are excited about their job, and they love working for that management team, they’re more productive,” he says. That’s a good thing for owners, investors and workers alike. This series on bold bets is funded by The B Team. All content is editorially independent except for pieces labelled “brought to you by”. Find out more here. |