When Chicago financiers Marty Nesbitt and Kip Kirkpatrick founded Vistria Group in 2013, they had a different kind of private-equity firm in mind—one that would be more progressive in its practices and defy skeptics with strong returns, too.
"I don't even like the term 'private equity,' " says Kirkpatrick, a longtime buyer and seller of companies who says the label conjures up images of "white men at the country club" and corporate raider-types like the Gordon Gekko character played by Michael Douglas in the movie "Wall Street." "I think we're so much different from that."
Their approach is paying off. Chicago-based Vistria this month expects to close on a new $1 billion-plus fund, tallying a total of $3.1 billion under management, Kirkpatrick says. A fund of that size puts Vistria in the big leagues with larger firms like GTCR and Madison Dearborn.
Kirkpatrick is a finance industry veteran who co-founded Chicago rival Water Street Healthcare Partners, but left and later ran unsuccessfully for Illinois treasurer as a Democrat in 2009. Nesbitt worked for Penny Pritzker's realty business and led a parking facilities company, but is best known for his work on President Barack Obama's campaign and now chairing the former president's foundation. As co-CEOs, Kirkpatrick and Nesbitt are still following a private-equity playbook that calls for raising money from institutional investors like pension funds, endowments and wealthy families, and then using it to buy companies they aim to expand and sell at a profit. Their focus on industry niches, namely health care, education and financial services, also isn't revolutionary.
But what's different is their mission to make private-sector investments that contribute to a public good. While investment firms have pitched the "double bottom line" in the past, clients expected it would mean lower returns, Kirkpatrick says. "We're not going to sacrifice returns," he says. "We think by being better businesspeople and caring about these issues, we're going to produce better returns because we can attract better talent, because (portfolio) companies will be solving problems that, again, make them inherently more valuable. And that is a little bit of a radical concept."
Fueling that unique perspective is its rare firm leadership profile, he says. Two of Vistria's 11 partners are African American, including Nesbitt, and the firm views that as a competitive advantage, Kirkpatrick says. (It also helps win allocations from some pension funds like the Illinois Municipal Retirement Fund that make a point of investing with minority-owned firms.)
Still, Vistria resembles an old-line private-equity firm in other respects. Scrolling down its online directory reveals just one female partner and a host of women in less lucrative administrative roles. "We are trying hard to increase our gender diversity," Kirkpatrick says. "We don't make any excuses."
In a $2.2 trillion U.S. industry known for adding debt to companies and cutting workers to bolster returns, it won't be easy for Vistria to cast a new image. But its impact-investing pitch may stand out for institutional investors increasingly focused on environmental, social and governance, or ESG, considerations. In a recent UBS Group survey of such investors, most said it's a "material risk" not to be engaging in such impact investing.