There are currently 256 impact funds currently fundraising, according to New Private Markets‘ proprietary database. Around half of these have been on the road for more than a year, having launched in either 2021 or 2020.
Private markets fundraising in general has slowed down over the past year, amid market volatility, the denominator effect and a slowdown in distributions back to LPs, said Anna Morrison, senior director of private markets at investment consultant bfinance. However, she continued: “We see no signs that demand for ‘impact’ private equity strategies is wavering.”
Amid a tighter fundraising environment, Morrison expects generalist impact funds to fare well. “Periods of slower fundraising do generally feature a flight to quality and the long-established front-runners in the ‘impact’ private equity space tend to have a generalist impact focus whereas these targeting a specific theme or themes within impact (eg, climate) typically have shorter track records,” she told New Private Markets. “So, while more niche strategies have emerged, and there is strong demand for sub-themes such as climate, we would actually expect current fundraising conditions to favour the stronger generalists,” she said, noting that many generalist strategies feature climate as a central component.
Ali Floyd, a managing director at placement agent and advisory firm Campbell Lutyens, says there is increasing demand for certain thematic strategies, “with climate, healthcare and sustainable food and farming pre-eminent”, but there is also LP demand for exposure to “mature and profitable businesses”. The GP supply of new strategies is mostly targeting younger companies, he says, “so, while the trend favours thematic approaches, we still expect there to be strong demand for the small number of established groups that have a successful track record of investing in more mature companies across more than one of these themes”.
Notable generalist impact funds in market include: Apollo’s Impact Mission Fund, which has a $1.5 billion target and started raising capital in 2021; TPG’s third Rise fund, which has a target of $3 billion and launched in 2022; and Apax Partners debut impact fund, which started raising capital in 2021 with a target size of $1 billion.
The New Private Markets database launched this week. It holds information on how private markets investors and managers around the world are approaching sustainable and impact investment. It lists private equity, private debt, infrastructure, agriculture and private real estate funds that pursue an impact investing strategy as well as funds that classify themselves as either Article 8 or Article 9 under the EU’s Sustainable Financial Disclosure Regulations. It also profiles GPs that manage, and LPs that allocate to, sustainable funds. Funds are considered to be impact funds in the database if they are marketed as generating positive, measurable social and environmental impact alongside a financial return.
According to the database, the average time it has taken to close an impact fund or SFDR Article 9 fund has historically been around 17 months. More than half of the impact vehicles currently in market (53 percent) are identified as private equity strategies, with smaller quantities of infrastructure, private debt and real estate funds also raising capital.