Philip Newborough, the co-founder of impact investor, Bridges Fund Management, tells Kate Cracknell capitalism risks losing its mandate, and why every business (which includes the fitness industry) needs to start thinking about social impact.
When you refer to Bridges as an impact investor, what do you mean?
Bridges Fund Management is an investment company that uses commercial expertise to deliver both financial returns and social and environmental benefits. We believe that market forces and entrepreneurship can be harnessed to do well by doing good.
Over the course of the 20th century, the prevailing model of capitalism became all about maximising risk-adjusted returns. There was an unrelenting focus on shareholder value and profit maximisation, with scant regard to the other consequences that business or capitalism had. This has only accelerated with the emergence of private equity.
Our view at Bridges is that, in the 21st century, all businesses and investors should base their decisions not just on financial returns, but also on impact.
They need to take into account the effect they have on their broader stakeholders: employees, the supply chain, the environment and so on. If you don’t do this, then you’re not serving society terribly well – and that’ll ultimately undermine the value of the business.
The capitalist model may create wealth in the short term, but if it doesn’t start to address the broader issue of serving society, it risks losing its mandate – its licence to operate.
If inequality continues to grow, that might force more difficult change.
What was your personal motivation for setting up Bridges?
During my career I’d seen grants being used to try and solve social issues such as the wealth divide, to little or no effect. Income inequality was just getting worse.
Our thesis at Bridges is that governments alone can’t solve these problems by taxing and spending and that philanthropy can only go so far; if you want to address these issues, you really need to tap in to the huge pool of private and investment capital that’s out there.
That’s why, over the last 16 or 17 years, we’ve tried to find different ways of using our capital to make a difference – matching capital to innovative, entrepreneurial solutions.
How do you decide which businesses to invest in?
Obviously we look at the financials. Scale is another key aspect: our initial investment is typically £10–15m, so we’re looking for established, high-growth businesses. There needs to be a ‘specialness’ around the business too: it needs to be disruptive, differentiated and led by a team that believes very strongly in both the impact and the financial plan.
However, the first thing we look at is the impact the business can have, and here we focus on four areas: health and wellbeing; education and skills; sustainable living; and under-served populations.
Within the fitness sector, from an impact point of view, low-cost gyms have always been an obvious investment for us. Going to a high-quality gym was really a luxury until the emergence of low-cost gyms: they’ve made high-quality fitness much more accessible. Even people on lower incomes can be members.
Are all your investments in the UK?
Our investments are predominately UK-based – The Gym Group as a prime example in the fitness sector – but we do invest outside the UK too. We own Viva, which is the largest low-cost gym business in Spain, as well as Portuguese market leader Fitness Hut. We also own Planet Fitness, one of the largest fitness franchises in the US.
The challenges we’re facing in the UK in terms of income equality, climate change, ageing populations and so on – are pretty much the same across Europe and the US. We find our approach resonates across the developed world.
Some have seen fitness as a risky investment, what’s your view?
Actually, we love it: it really chimes with our investment style. The fitness market is very local, with proximity people’s main consideration. That makes these businesses very scalable: you know the population, you understand the demographics of the people you’re trying to serve, you know how many of them there are, and you can, therefore, predict realistic penetration rates. You can go step by step, reflecting on and improving the model as you roll out one site at a time.
You also invest mainly via capex, so you can speed up, slow down and then pause before moving forward if needed.
So, we very much like the dynamics from an investment point of view. The site-by-site roll-out means you get good data – and the more sites you open, the better your data gets.
Aside from the actual investment itself, what does Bridges bring to the table?
We bring a lot in terms of the execution and the operation. Our day job is helping businesses work through the growing pains that are associated with all successful companies: helping them scale, developing the tech systems that sit around the business, involving the management team, driving employee engagement and so on.
Employee engagement tends to be very strong in the companies we invest in: one of the great things about an impact-driven approach is that it tends to create a stronger sense of purpose. In the end, most people want to feel that what they’re doing in their day job has meaning and value – so when you have a business with such a clear sense of purpose as The Gym Group, for example, you create a huge amount of employee engagement and dynamism. Your employees get behind what you’re trying to achieve, not just in financial terms, but also in terms of your impact on members and the population as a whole.
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