Fund of fund managers are launching dedicated impact strategies as the rise of climate vehicles, growing investor demand and definitional clarifications from regulators buoy the impact market.
Allianz Global Investors launched an Emerging Market Climate Action strategy targeting €500 million last week in partnership with the European Investment Bank. EMCA will invest in vehicles focused on climate mitigation, climate adaptation and access to electricity in emerging and developing markets. Other investors include the German and Luxembourg governments, the Nordic development fund and Folksam.
Allianz has already brought to market one impact investment fund: AIIF was launched in December 2019 and has raised €117 million against a €300 million hard-cap, according to PEI Media’s database. The fund was due to close by the end of 2020, according to an announcement in April that year, but Allianz has yet to announce a final close and declined to comment on its status.
Golding Capital Partners, a fund of funds manager headquartered in Munich, is targeting €300 million for its debut impact vehicle, launched in September. Golding set up its impact platform in March with the hire of Andreas Nilsson, Golding’s head of impact and co-founder of impact fund of funds manager Sonanz, along with the rest of Nilsson’s Sonanz team.
Among other managers eying this space is Alpha Associates, a Zurich-headquartered fund of funds manager, which is planning to launch an impact-oriented fund of funds and co-investments vehicle in early 2022, the firm has told New Private Markets. “We want to position ourselves at the forefront of ESG initiatives in the funds of funds space, as there is increasing demand for ESG compliant products from our mainly European client base of pension funds and insurance companies,” said Emanuel Eftimiu, head of ESG at Alpha.
That increasing demand, combined with an increased supply of relevant fund opportunities (especially in the area of climate), is drawing fund of funds managers to the space en groupe.
“Investors are typically experienced with private equity, but they lack the skills and resources to invest in these types of growth private equity impact funds around the world,” Golding’s Nilsson told New Private Markets. “The funds we’re looking at are smaller and less well-known. It requires a much more experienced and dedicated team.”
Clarity on the EU SFDR and taxonomy – which came into force in March – has made it easier for impact fund of funds to develop a straightforward investment mandate, “with some of them only planning to invest in Article 9 funds or only 8 and 9,” said Paula Langton, head of sustainability at placement agent Campbell Lutyens, who noted that while some investors will commit to impact through their private equity allocation, others will have a separate impact bucket.
Some managers, like Golding, will take a thematic approach rather than rely on SFDR classification. The Munich-based firm, Nilsson said, is focused on three sectors: green solutions, sustainable food and agriculture and financial services in developing markets.
“We invest with specialist managers in specific sectors that can address these issues.” These themes include: reducing greenhouse gas emissions; reducing environmental damage caused by material waste; reducing food waste; increasing income for poorer populations in emerging markets (“We’re using that as a proxy for social impact in developing markets”, Nilsson said); increasing access to healthcare; and increasing access to nutritional food.
“We still want a diversified portfolio within these impact themes. There are hundreds of managers that we have tracked for many years, and we’re looking for GPs with a strong track record in these sectors and markets.”