Even with the sustainability tailwind, fundraising is not plain-sailing

What to make of current fundraising conditions? This question is never far from our thoughts; it has been even more prominent since the launch of our database of funds, investors and managers last week.

Conversations with market sources suggest that, while fundraising across broader private markets has slowed down, investor appetite for impact or sustainability-focused funds remains on the up. “We see no signs that demand for ‘impact’ private equity strategies is wavering,” said bfinance’s Anna Morrison.

A report published by investment bank Raymond James echoes this. A full 40 percent of limited partners expect their allocations to impact and sustainability-related strategies to increase in 2023 compared to 2022, according to a survey. This would put impact and sustainability ahead of healthcare (where 35 percent expect an increase), business services, financial services and defence (all 25 percent). Very few investors (3 percent) anticipate a lower allocation to impact and sustainability.

The bank would not disclose the sample size for the survey, so we treat the results with a little caution. However, the idea that more capital is being made available to managers of impact funds is evident in this week’s news.

Netherlands-based Polestar Capital, for example, is reporting traction among investors for its circular economy-focused private credit fund. Launched last year, director Jan-Willem König told New Private Markets he is expecting to hit the fund’s €250 million target by the end of H1. LPs who had been “busy defining their investment strategies and their investment buckets” for the last three years are now ready to deploy capital, he said. Polestar has just received commitments from four Dutch institutions.

Meanwhile, Climate Asset Management is toasting a $200 million mandate from tech giant Apple to split between its two strategies: a Nature-Based Solutions strategy, which generates carbon credits, and a sustainable agriculture income fund with a $1 billion target. Apple’s suppliers could potentially become partners in the fund, which Climate Asset Management’s Martin Berg described as “a rallying cry for corporates the world over”.

Then there is the open-ended Lloyd’s Private Impact Fund that Schroders Capital will be managing for investors in the historic insurance marketplace of the same name. It has been seeded with a £250 million ($312 million; €284 million) initial commitment from Lloyd’s.

And finally, Two Sigma just held a final close on a private equity fund that puts a slightly different spin on impact. Fundraising was no picnic for the firm. It launched during the height of pandemic restrictions and didn’t quite hit its original $750 million target. But partner Warren Valdmanis said he was nevertheless “thrilled”: “To have raised a first-time fund of this size is a good endorsement of the strategy that we’re pursuing.”

What then to make of current fundraising conditions? These examples tell us two things. First is that a sustainability focus is indeed attracting LP capital amid otherwise tight conditions. Second is that in the broad church of impact and sustainability, LP capital is not particularly commoditised or fungible; it would be a surprise – to say the least – to find the same LP in any of the above funds.

So while sustainability may be “the place to be” in private markets, fundraising requires precision. Or a helpful new database.