GPs seeking impact turn to long-term fund structures

This week, Pictet Alternative Advisors – Pictet Group’s alternatives business – brought to market a European long-term investment fund, or ELTIF, that will make co-investments alongside PE managers. It has five sustainability themes: greenhouse gas reduction, sustainable consumer, pollution control, the circular economy and enabling technology. The firm is hoping to raise $400 million and has a target IRR of 14 percent.

In doing so, Pictet joins a growing number of GPs launching sustainability-themed products under long-term structures designed to provide individuals with access to private markets.

European long-term investment funds were originally introduced in 2015 to allow both individuals and institutions to invest in unlisted assets, though did not initially prove popular. An amendment to the structure, known as ELTIF 2.0, came into force in January and reduced restrictions in terms of diversification requirements, leverage and the ability to invest in funds of funds. They are open to commitments from institutional and retail investors and, since the amendment came into force, no minimum investment amount.

Many GPs have now launched ELTIFs with sustainability angles.

Mirova, the impact-focussed subsidiary of Natixis, launched its first ELTIF in 2022. Marketed under Article 9 of the SFDR, the fund makes growth equity investments along the themes of smart cities, natural resources, agrotechnology, circular economy and clean energy. BlackRock began marketing an SDG-aligned private equity co-investment ELTIF in March last year. Carbon Equity, a platform that provides individuals with access to climate venture capital funds, also has plans to launch one. ODDO BHF Asset Management announced plans to raise €100 million for a programme of climate-focused fund investments, secondaries and co-investments through an ELTIF structure earlier this month.

‘TIF for ‘TAF

Continuing this trend, Long Term Asset Funds were introduced by the UK’s Financial Conduct Authority in 2021 to  increase defined contribution pension funds’ and individual investors’ access to private markets. They have many features in common with ELTIFs and also have no minimum commitment size.

Schroders Capital was the first firm to launch such a fund. Climate+ came to market last year and will be invested across private asset classes including private equity, infrastructure, real estate, private credit and natural capital. It is classified as an “impact fund” under the UK’s Sustainable Disclosure Regime, addressing themes such as climate change mitigation, climate resilience, biodiversity protection and just transition. An LTAF focused on renewable infrastructure followed in February. A third, dedicated to venture capital, is in the works.

The firm has raised £92 million (€107 million; $114 million) for the strategy as of the end of 2023, head of UK institutional defined contribution Tim Horne tells New Private Markets. 

For Horne, Schroders’ decision to make its first LTAF an impact fund was about meeting the needs of a group of clients (defined contribution pension schemes), rather than there being anything about the fund structure per se that makes it ideal for impact or sustainability-themed investments.

He says: “There are many DC schemes that have a pretty strong focus around making those types of [sustainable] investments both in the public space and then moving into the private space. That certainly played into our thinking, rather than the fund structure.”

BlackRock launched a multi-asset-class LTAF in May last year. It also has a sustainability flavour: priorities will vary by asset class and could include “managing ESG risks”, “the integration of ESG considerations in the assessment of investments” and “providing capital for investments that can support sustainable themes”, Dominic Byrne, a director in BlackRock’s EMEA Retirement Solutions department, told New Private Markets at the time.