Blue Earth Capital, the impact firm established by the founders of Partners Group, has closed its second impact credit fund on $108.5 million.
The fund focuses on social and environmental themes in emerging markets, such as financial inclusion, affordable housing, agribusiness, energy access, healthcare and education.
It was launched in 2020 with a $20 million commitment from Urs Wietlisbach, a co-founder of Partners Group and chairperson of the firm. Blue Earth did not start marketing the fund externally until 2021, head of private credit Amy Wang told New Private Markets. Other investors include the US’s Development Finance Corporation, which committed $25 million, and several pension funds, family offices and foundations.
BlueEarth Credit Strategies II closed above target, having aimed to raise $100 million. Wang considers this a testament to LPs’ sustained appetite for private credit amid tighter fundraising conditions across private markets. “For some of the biggest [social and environmental] challenges in emerging markets, private impact credit is an asset class that just works really well. It’s very resilient, it’s uncorrelated to the broader market,” said Wang.
The credit platform that Wang leads has deployed approximately $300 million. Much of this has been via segregated mandates: like Partners Group, Blue Earth has a large bespoke investments and mandates business.
For each investment: “We create an overall theory of change – a logic model [for impact] – and we have a proprietary tool around the impact management project assessment of what the intentional positive impact of each investment is,” said Wang. “That allows us to drive to the KPIs that we can set as goals within our [credit] facilities.” Blue Earth also uses an environmental and social management system to manage downside risks. “One of the benefits of working with the DFC was that we really got an upgrade in our ESMS,” said Wang.
Despite not acquiring a controlling stake in companies and assets, Blue Earth has a number of ways to ensure its investments deliver their impact goals. “We often tranche our investments,” said Wang. The firm sets impact goals for a company with its initial credit facility, “and then after the achievement, we’ll release follow-on funding.”
“We have covenants that can be tied to social or environmental metrics, and we’re very careful about those because you need to make sure they really have teeth. They’re just as important to us as financial covenants. And it’s doable because the social achievement of the mission has to be tied to the commercial success of the business.”
Ultimately, “we do end up having a bit more influence than you would expect in traditional markets because we work in emerging markets and our relationship with these management teams are often close. We’re often the first lead institutional and international lender there. We get really involved.”