Impact Through a Legal Lens: What Impact Investing Means for This Law Student’s Career

Last fall, Wharton Social Impact Initiative announced a collaborative project with Penn Law’s Entrepreneurship Legal Clinic (ELC), and during the 2017 spring semester we welcomed four Penn Law students to continue the work through the Social Impact Fellowship.

In collaboration with Anne Tucker, an associate professor of law at Georgia State University, this cross-campus collaboration aimed to advance our ongoing impact investing research and provide new insights into impact targets, legal structures, and performance of private equity funds with a social or environmental mission.

WSII’s impact investing research project launched in 2014 under the supervision of Wharton finance faculty Dr. David Musto and Dr. Christopher Geczy to examine both the financial performance and the social impact of self-identified impact investing private equity funds around the globe.  The research project is ongoing, and has thus far yielded social impact, financial, legal, and demographic information from more than 100 funds.  Included in the data are financial source documents, such as annual and quarterly reports, in addition to funds’ transactional documents, such as limited partner agreements, private placement memoranda, and investee term sheets. We continue to expand this research, and the partnership with Penn Law students allowed us to broaden our scope even further.

This week we will publish a series of blog posts from these students, reflecting on their experience and what we’ve learned thus far. Tune in each day for new updates from the team.

Law student Ryan Galea reflects on how a semester in the Wharton Social Impact fellowship helped him gain a greater understanding of impact investing, and his own career.

Last winter, when I joined the Wharton Social Impact Initiative fellowship, I became part of a legal research team collecting data to better understand how impact investing funds, social impact practices, and legal agreements interact.

Our goal was to gather information, from the legal documents of numerous impact investing funds, with the purpose of building an understanding of how these funds reflect their social impact agendas in their legal agreements.

The types of documents I reviewed included limited partnership agreements, private placement agreements and investment term sheets. My role was to read through and “code” these legal documents. The “coding” process involved transferring the information contained in the documents to a spreadsheet containing nearly 150 unique fields.

Some of these fields related to information common to all investment funds, such as the terms of the securities to be issued by the fund. However, we also took note of more unique information. This information included terms between investment funds and potential portfolio investments regulating the social impact of the portfolio company, such as prohibitions against certain activity. At the fund level, similarly unique information included metrics for tracking portfolio company impact, such as job creation, and various social impact related investment requirements.

Each week of the project, we had a team meeting to discuss our progress and findings from the previous week. For instance, to our surprise, we discovered that there was very little consistency across the funds in terms of how impact was addressed in their legal documents.

With each of these meetings, I found my understanding and fluency with the impact investing space improving dramatically.

I also found myself asking increasingly granular questions about the content of our research, many of which would require additional future research to answer. Specifically, questions such as do impact investing funds get more favorable terms with their limited partners given that investment return is not their only focus? Similarly, do impact investing funds have more negotiating leverage with potential portfolio investments than comparatively sized competing funds that are not focused on the social impact angle?

In all, the experience greatly furthered my enthusiasm for the impact investing space, and I would recommend any one with a similar interest get involved with the Wharton Social Impact Initiative. I was curious to learn more about impact investing given my own career interests, and I saw the legal research project as a great way to improve my fluency in reading various financial legal documents. Ultimately, I completed the project satisfying not only these interests, but also learning so much about the current state of impact investing, as well as the challenges and changes the space is undergoing. Although the concept of impact investing is not new, the space is in an exciting period of change that makes now the perfect time to get involved.

Download a Report of All Of Our Research Insights From This Series

Ryan Galea is a first year in the 3-year Carey JD/MBA program at Penn Law and Wharton. Prior to starting the program, he worked for two years as an associate in private equity at Lindsay Goldberg in New York where he worked closely with the management teams at Odfjell Terminals, Dealer Tire and Federal Way Asset Management. Prior to this, Ryan spent two years as an analyst in the Healthcare investment banking group at Credit Suisse in New York, focused on the healthcare services, pharmaceutical and medical device sectors. Ryan graduated from McGill University in 2012, with a Bachelor of Commerce in Finance and Accounting.