How to assess managers in the ‘highly imperfect world’ of impact private equity

10 red flags to watch for when assessing the manager of an impact fund, according to investment consultant bfinance.

Short track records, problematic KPIs and differing expectations make managers in the budding private equity impact space “far from straightforward to assess”, according to a new paper from investment consultancy bfinance.

The paper describes a growing private equity impact investing market, in which the arrival of funds of funds and dedicated secondaries vehicles marks an expanding and “increasingly diverse” fund universe.

Takeaway number one: in an immature asset class such as this, where a lot of managers are raising Fund I, “idealised impact investing ‘best practice’ does not yet translate into real life”, the report notes.

“Actual track records are short; KPIs are problematic; managers are often unable to demonstrate intentionality, additionality or a clear theory of change to the extent that one may wish,” the authors write. “The investor must find a way of navigating a highly imperfect world.”

The report lists what it sees as red flags in assessing managers, funds and deals. Here is a list of red flags at the firm level that bfinance says “may suggest a weaker approach within the current manager peer group.” The list is not comprehensive.

Policies and commitments

  • Vague/superficial policies lack practicality.
  • Annual sustainability reports lack transparency and/or tangible evidence of outcomes achieved by the firm to support commitments.


  • Firm-level affiliations do not reflect specific types of impact targeted in strategies, eg, a climate strategy, but no firm-level involvement with climate or net zero initiatives. Considerations may vary by region (US vs Europe) due to lower pace of adoption.

Resource & governance

  • Non-ESG/impact investment team members unable to communicate on or lack conviction on ESG/impact matters.
  • Slow/limited development of ESG/impact resources; staff may be inexperienced (rapid move from analyst to director level due to high demand for talent).
  • ESG/impact individuals spread thinly across strategies/asset classes, with low time commitment to a specific strategy.
  • Lack of diversity at firm level and specifically in the investment teams.

Impact product development

  • Firms entering this sector with an ‘asset aggregator’ mindset; product development chiefly driven by financial considerations.
  • Misrepresentation of strategies using ‘impact’ product labels.


  • Lack of discussion or willingness to consider (over time) developing KPIs that are linked to impact particularly as impact outcomes are a measurable objective of the strategy.

Around two-thirds of the impact funds bfinance has assessed have been launched by managers for whom impact is not their main strategy: a typical example would be a multi-strategy firm that launches an impact fund. One doesn’t have to stick with impact-only managers to find “high quality” strategies, bfinance says, but “many firms do have an ‘asset aggregator’ mindset when launching impact strategies. Look carefully at indicators of commitment and culture.”