This week we released our first fundraising report for private markets impact strategies.
The charts illustrate clearly the boom of 2021 and 2022, in which private markets impact investing came of age. Having hovered at around $10 billion in annual funds raised for the three previous years, the total rocketed to $28 billion in 2021 and $44 billion in 2022.
Also on clear display is this year’s slowdown in fundraising; just $6.4 billion-worth of impact fund closes were held in H1 2023, according to the report.
This fits within the wider private markets context. Private debt fundraising is at its slowest pace since 2016; private real estate its slowest since 2010 (even with the H1 numbers buoyed by a $30.4 billion mega-fund close from Blackstone). Private equity’s drop is less dramatic in terms of dollar value raised, but the number of funds closed in H1 (508) is almost half the 974 closed in the same period last year.
As is often the case, there is more to the story than just the headline numbers. EQT and TPG have between them raised more than $5 billion towards their respective impact vehicles currently in market. Blackstone expects to close its energy transition credit fund above its $7 billion target imminently. Brookfield recently registered its second Global Transition Fund, for which it plans to raise more than its predecessor’s $15 billion. These are all substantial funds in the relatively nascent world of impact and sustainable private markets. This suggests that, despite the slower pace of fundraising, the amount of capital raised will not revert to the pre-impact boom levels of 2020 and before.
Nevertheless, the slower pace of fundraising does not look set to change any time soon, says Ali Floyd, co-lead of the sustainability practice at placement agent Campbell Lutyens. On the demand side, LPs are constrained by the denominator effect and scarce distributions from existing funds. On the supply side, there has been a “traffic jam” of GPs coming to market as the fundraising cycle has shortened, says Floyd. “I expect these to clear through at some point… but probably not within the next six months,” he says.
The good news is that certain sustainability themes remain hot for investors. To be precise, many LPs find themselves “strategically underweight” to segments like environmental sustainability and healthcare impact, adds Floyd. “In both cases there remains an insufficient supply of institutional grade strategies to meet the demand from LPs,” he tells New Private Markets.
It is also worth noting that in the realm of impact, while private equity has been the dominant asset class, other asset classes are only just getting started. More than half of the capital raised in the last five years has been for private equity strategies (this excludes multi-asset class funds). Private debt, real estate and agri account for less than 20 percent, but are emerging as important delivery systems for environmental and social impact and will drive growth in the market.
The other shard of sunlight amid otherwise cloudy skies is that for LPs this has become more of a buyer’s market. For those with with a list of “wants” – whether that be sustainability-related data or concessions on more conventional fund terms – now is the time to ask.