In recent times, products targeting a particular theme of impact have arguably had the upper hand: climate-focused vehicles have become prevalent, with the largest asset managers able to raise funds well in excess of any other impact strategy.
Of the 10 largest Article 9 or impact funds to close since the beginning of 2022 according New Private Market‘s database, just two could be described as generalist. Of the other eight, six focused on climate and energy transition, one on affordable housing and another on environmental improvement.
Many LPs seem to favour a tailored approach to impact. Luba Nikulina, who spent nearly 15 years assessing managers when at consultant Willis Towers Watson, said she tended to prefer specialists because they are more likely to have deeper expertise. The LP could then provide the “holistic overlay” to ensure it invested in a diverse range of impact strategies, Nikulina, now chief strategic officer at IFM Investors, told New Private Markets over coffee this week in London.
Nevertheless, many of the largest private markets firms are continuing to pursue generalist impact strategies, and are having some success in raising funds. This week EQT told NPM that it has raised €2.7 billion for its generalist impact PE strategy EQT Future, making it the largest capital pool of its type ever collected. The likes of KKR and TPG are also raising funds for generalist strategies, and have each collected around $2 billion so far.
TowerBrook, another longstanding brand in private markets and champion of sustainable investment, has also thrown its hat in the generalist ring. Having launched an impact strategy in 2021, it unveiled its first investments this week. The firm declined to comment on fundraising.
A slower fundraising environment may be playing into the hands of these strategies. Earlier this month, bfinance’s Anna Morrison noted that periods of slower fundraising do generally feature a “flight to quality”. 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 said.
Ultimately, there is of course room for both strategies in a growing market. Nikulina points out that an LP’s choice of impact approach may be determined by its resources, with less sophisticated investors likely to skew generalist. “If you are an average pension fund with limited governance, it could be the generalist fund is your best point of entry where you would get both positive impact and returns.”