ImpactAlpha, May 16 – Before it became an object lesson of private equity scandal, the $1 billion Abraaj Growth Markets Health Fund was an emblem of Sustainable Development Goal opportunity. Now that TPG Growth has finally completed its acquisition of the fund from the rubble of Abraaj, the question can again be posed, as we did in a podcast last year, “Will ambitious global health strategy survive the Abraaj scandal?

The story of the fund, now called the Evercare Health Fund, wraps together not one, but two private equity scandals. TPG Growth’s courtship of the fund’s limited partners, most prominently the Bill & Melinda Gates Foundation with an investment of $100 million, began under TPG Growth CEO Bill McGlashan. In the midst of negotiations, McGlashan was fired (or resigned, he says) after his federal indictment in the Varsity Blues college admission scandal.

The deal was completed under new CEO Jim Coulter, the TPG veteran who came in to lead not only TPG Growth, but The Rise Fund, the $2 billion dedicated impact investing fund co-founded by billionaire Jeff Skoll and U2 rock star Bono. Rise II, a planned $3 billion impact fund, has already closed on about $800 million in commitments.

“There is an undeniable need to bring better quality, lower cost healthcare options to emerging markets,” Coulter said in the statement announcing TPG’s definitive agreement to take over the fund. With the limited partners, he said, “We will leverage our own experience to build on a shared vision of increasing access to healthcare in communities that desperately need it.”

Health platform

The new Evercare Health Fund officially will be part of TPG Growth, that is, the non-Rise side of the business that does not attempt to “underwrite” for impact, as Rise funds do. But TPG Growth is expected to apply the same “impact multiple of money” methodology to measuring the health fund’s impact. The Rise Fund earlier this year spun off Y Analytics as a separate business to offer that methodology as a service to other funds.

It’s not clear whether TPG Growth will go beyond The Rise Fund’s standard practices for measuring and reporting impact. The “impact multiple of money” methodology has been criticized as reductionist by some impact investing practitioners. They suggest the calculation is ripe for manipulation and grouse the method may cherry-pick positive outcomes without accounting for possible negative consequences.

In the statement, Matthew Hobart, who heads health care investing for both TPG Growth and The Rise Fund said only that the acquisition would “create positive, measurable and sustainable impact.”

Outside of Rise, Hobart has led the creation of Asia Healthcare Holdings, which has invested in or acquired networks of cancer and maternity hospitals across South Asia.

It’s not clear how that platform will integrate with Evercare’s own platform. Before Abraaj’s accounting scandal, the fund had completed the acquisition of Avenue Group, a Kenyan hospital chain, and earlier snatched up the Islamabad Diagnostics Centre, a network of low-cost diagnostic centers. One of fund’s anchor investments is Care Hospitals, India’s fifth-largest private healthcare provider. Abraaj was building new hospitals in Lahore and Lagos and had acquired a plot in Karachi for a planned 17-floor hospital.

On Wednesday, Evercare employees were told by email that CEO Khawar Mann had resigned, Reuters reported. Mann had remained at the fund, headquartered in Dubai, throughout Abraaj’s meltdown. Chief Operating Officer Andrew Currie will take over day-to-day leadership.

According to TPG Growth’s statement, “The Evercare Fund, alongside TPG and The Rise Fund, will put new capital to work to support existing assets and make entirely new investments across the region to continue the growth of the Evercare platform.”

Program-related investments

The disposition of the fund is critical to meeting the original goals of guiding private investment toward fulfillment of Sustainable Development Goal No. 3. Before the Gates Foundation played a role in blowing the whistle on alleged wrongdoing at Abraaj, Bill Gates had helped craft the fund’s ambitious strategy with former Abraaj CEO Arif Naqvi, The Gates Foundation helped bring in other investors, including the International Finance Corp., Proparco and CDC Group.

“Bill was instrumental in that vision,” Naqvi said on a panel with Gates at Davos last year. “It all started with a discussion with him, that you can tackle the base of the pyramid, but there are so many measures that have to be dealt with. ‘Let’s come up with an innovative solution.’”

The fund’s transfer to TPG will test the legal limits of a form of foundation capital called “program-related investments,” at a time when TPG and other major private-equity and alternatives asset managers are raising large new funds. (See, “Climate and social strategies power a new wave of infrastructure funds”). The Gates Foundation investment in the health fund came not from its foundation trust endowment of more than $50 billion, but from a $2 billion mandate on the foundation’s program side. Under U.S. tax code, the primary purpose of program-related investments must be charitable. Profits, even large ones, are permissible, but only as a secondary purpose.

As a matter of policy, the Gates Foundation reserves the right to withdraw from investments if the charitable commitments are not met. Foundation officials declined to comment. Two outside legal experts on tax laws concerning program-related investments also declined to comment.

(Disclosure: ImpactAlpha collaborated with the Bill & Melinda Gates Foundation on “Making Markets Work for the Poor,” a report which shared the foundation’s experiences in making program-related investments. The full project, published in the Stanford Social Innovation Review, is available here.)

Under McGlashan, The Rise Fund was a proponent of a form of investing in which social impact and financial returns can be “collinear,” that is, social impact grows along with the growth of the business. Yet to be fully tested, however, is how to firm behaves when such win-wins are not possible, or when business and impact strategies diverse, for example, over how to balance the needs of lower-income customers with ones able to pay more for health care.

The Abraaj Growth Markets Health Fund is expected to generate internal rates of return in the mid- to high 20s, Bloomberg reported in 2016. TPG Growth has targeted even higher returns.

Development-finance institutions among the limited partners have their own reporting and measurement requirements. In the statement, members of the Limited Partners Advisory Committee said they “remain deeply committed to the fund and its mission and look forward to working with the new managers to support businesses that can improve the health and wellbeing of underserved people across Africa and Asia.”