When Greg Shell, a partner in Goldman Sachs’ impact investing unit Horizon, took to the stage at affiliate title New Private Markets‘ Impact Summit: North America earlier this month, he presented data showing widening income inequality and a steady decline in the proportion of children who will earn more than their parents.

“The wealth gap continues to expand. The core tenets of the American dream are increasingly untenable for most,” said Shell.

The following day, the chief sustainability officer for Manulife’s $74 billion AUM private markets group, Brian Kernohan, used his speaking slot to warn delegates that inequality represents a “great source of risk and missed opportunity” for the investment industry. He didn’t want to look back in 10 years’ time and “regret that we didn’t make the world a more socially equitable place”.

Rising inequality is officially on the private markets agenda. The first question is whether institutional investors – and private markets investors specifically – are genuinely motivated to address it. To quote Delilah Rothenberg, co-founder and executive director of the Predistribution Initiative, writing in the non-profit’s latest newsletter: “We often hear a common misperception: ‘Isn’t inequality good for investors?’”

It is not. For large asset owners with long time horizons and diversified portfolios, the systemic risk posed by rising inequality is material. “Large universal owner investors understand how this contributes to system instability,” wrote Robert Eccles, who chairs KKR’s sustainability advisory group, back in 2022.

As Kernohan put it: “It limits productivity and innovation; it constrains consumer spending and growth; it creates political instability; and also acts a threat multiplier making other problems worse.”

If the will to tackle the issue is growing, then the second question is whether investors have the tools to do so. Increasingly they do.

The nascent Task Force on Inequality-related Financial Disclosures (TIFD) could do for inequality what TCFD has done for climate, encouraging investors to report comprehensively on their inequality-related risks. Kernohan encouraged its development in his speech.

Beyond the disclosure of risks is the development of strategies built around solutions, and examples of this are appearing. Emerging manager Apis & Heritage has an investment strategy built around transitioning companies with substantially Black and Brown workforces into 100 percent employee-owned businesses. Mission Driven Finance is a Californian manager developing solutions that increase shared ownership opportunities, according to its website. Real estate impact firm Enterprise Community Partners has created a fund designed to distribute capital to renters who otherwise miss out on wealth-generation linked to property ownership.

Meanwhile in mainstream private equity, successful employee ownership initiatives are showing this to be a viable value creation tool.

Inequality as an issue presents both an emerging risk and an opportunity. Those who realise this early may emerge as leaders.


Toby Mitchenall is PEI Group’s Senior Editor, ESG and Sustainability, responsible for affiliate title New Private Markets.