“There is substantial data showing improved financial performance by companies that pay and treat their workers better.”
The Predistribution Initiative is a multi-stakeholder initiative to co-create new investment fund prototypes - designed for mainstream markets with risk-adjusted returns - that narrow compensation ratios between actors in the capital markets supply chain. The first phase of the project entails the development of several new private equity fund prototypes that share more profits with workers in the portfolio companies, taking a co-creation approach.
The private equity asset class is an initial focus due to the significant compensation that large private equity fund managers receive (e.g. approximate 2% management fees and 20% carried interest), as well as the ability for private equity managers to have more control and influence over their portfolio companies. For more information on the scale and potential systemic impacts of improving private equity fund structures, click here.
It is hypothesized that there are a number of new potential fund prototypes that can share more wealth with workers and produce risk-adjusted returns for asset owners. For instance, carried interest could be shared with workers in portfolio companies through enhanced profit-sharing pools. Employee Stock Ownership Plans (ESOPs) could also be expanded upon.
There is substantial data showing improved financial performance by companies that pay and treat their workers better. Based on this logic, asset owner returns can be stronger in private equity models that share more wealth with workers. These models must be designed to meet asset owners’ growing appetite for scalable, replicable impact and ESG, with risk-adjusted returns, as well as to reduce systemic market risk and instability arising from economic inequality.
Additional elements of research include, but are not limited to: opportunities to mainstream multi-stakeholder governance models (e.g. benefit corporations, worker ownership, steward ownership models, and variations or hybrids of these), alternative valuation methodologies versus IRR (e.g. multiple on invested capital (MOIC)), and investment team incentive structures to promote long-term outlooks and strong ESG integration.