This year’s Impact 50, which lists the GPs that have raised the most capital for private markets impact strategies, features managers focusing on a range of themes and asset classes. However, two of our top five – Actis and Meridiam – are outright infrastructure investors, demonstrating a clear link between infrastructure and big-ticket impact.
Both firms existed long before private markets impact strategies became commonplace. As a result, the pair had to work out how to develop an impact offering as they went. It’s a different story for others in our table, which had impact built in from the get-go.
Given Actis’s roots in development finance, the burgeoning impact scene was always likely to attract its attention, but there were still difficult questions to be answered on what that meant in practice.
Head of sustainability Shami Nissan says: “We spent about a year looking at this and we had a lot of discussions among the leadership at the firm. Did it make sense to have a separate strategy on impact? Was it wise to have some funds or products that were more heavily focused on impact while others weren’t? This was a time when TPG Rise was created, Apollo and BlackRock and loads of others were hiring heads of impact – obviously much larger managers than us.
“We didn’t want to go down the route of ‘Here’s a super dark green environmental product or here’s a really impactful product’. Because that begs the question, ‘So that means the other ones aren’t?’ That just didn’t fit our investment strategy, philosophy and brand and what we wanted to achieve. So, we ended up with an approach which was: if we’re going to do something more systematic on impact, it needs to apply to everything that we do.”
For Meridiam, which was founded in 2005, the journey into impact began eight years ago.
“Gradually, since adoption of the 2030 Agenda, we have engaged with the UN SDGs… We created the first transition fund back in 2015 to invest in the energy transition and an umbrella of infrastructure technologies that were delivering low-carbon solutions,” chief executive Thierry Déau said in a sponsored article for affiliate title Infrastructure Investor earlier this year. “We have grown around that framework to set clear strategic goals – on sustainable cities, access to clean energy, economic inclusion, biodiversity enhancement and of course climate.”
The firm now has three impact products on the fundraising trail, per NPM data: an Africa-focused fund; a growth fund that invests in SMEs along the themes of energy transition, clean mobility, circular economy, and sustainable cities; and the Urban Resilience Fund, which invests in sub-Saharan Africa.
French manager Infranity underwent a similar transformation. Previously known as Generali Global Infrastructure, the firm rebranded in 2018 to focus on sustainable infrastructure investments and had to decide what role impact would play in the strategy.
Managing partner Gilles Lengaigne explains how it first began to take impact seriously: “At the time covid really happened, we started to think about how we can be more conscious of our impact. We already invested for positive impact in our asset selection, but probably to really develop an impact strategy we needed to go a little bit further than that.”
That strategy is comprised of two funds. One focuses on environmental transition, which incorporates not just energy products but any infrastructure that helps further the movement towards a greener economy, including water treatment and waste processing. The second prioritises social infrastructure and invests in the health and education sectors as well as telecommunications.
“Between those funds and some co-investments offered on the back of this strategy to our investor base, we have raised about €1.35 billion,” Lengaigne says. “We’re going to bring that in the next two months to over €1.7 billion and target €2 billion by year end. That’s a great success considering the original target was €1 billion and the strong investor demand led us to revise it significantly upwards.” The money raised is a combination of anchor investments from parent company Assicurazioni Generali and external LPs.
“We invest sustainably in the asset class across everything we do, and I think we attract investors who value that. We are very clear about our messages. We are very clear about our positioning,” he adds.
Making it work
What, then, is the secret to raising a large pool of impact capital? Theme-wise, the impact infrastructure funds that have proven the most popular are those focused on climate and the environment. All of the infrastructure managers that made it into the table had an environmental element to their impact offerings, though focuses also span transport, mobility and internet connectivity, among other areas.
“Recent research indicates a heavy focus on environment focused strategies that include energy transition – renewable energy, sustainable transport etc. and climate solutions,” says Sarita Gosrani, director of ESG and Responsible Investment at consultants bfinance. “Some managers extend this to digitalisation and smart cities and other social themes such as healthcare, education etc. We see few managers with strategies focused only social thematics.”
SFDR classification may also play a role. Both Infranity and Actis point to their ability to tap into an emerging set of investors that are looking for funds rated Article 9 under SFDR as an element of the success of their strategies.
“The funds were initially designed prior to SFDR coming into play. When SFDR came into play, we attributed them an Article 9 category. Certainly, when you look at the landscape of Article 9 funds with an impact strategy in the infrastructure sector, there aren’t so many, particularly of this size. I guess that put us on the map,” says Lengaigne.
“There’s an emerging set of investors that are looking for Article 9 under SFDR funds, or minimum [Article 8]-plus. There’s a huge amount of undimmed appetite for transition as a theme,” agrees Nissan.
Meridiam has also had success in attracting unique pockets of capital, namely development finance institutions. The Urban Resilience Fund received a commitment from UK DFI British International Investment earlier this year. Similarly, the European Investment Bank invested €70 million in the Green Impact Growth Fund in December last year.
Elsewhere in the table, there are younger firms established with sustainable infrastructure in mind. Among these is Vision Ridge Partners, a US manager founded in 2008 that targets infrastructure investments in industries shifting to sustainability such as energy, transportation, and agriculture. It closed on a $700 million annex fund to support its $1.25 billion Sustainable Asset Fund III earlier this year. Fund I raised $430 million and received anchor commitments from Capricorn Investment Group and the Grantham Foundation for the Protection of the Environment. Fund II collected $670 million.
It’s a similar story for Climate Adaptive Infrastructure. Founded in 2019 by former Macquarie executive Bill Green, CAI looks for infrastructure investments in energy, water and urban infrastructure that are well positioned to weather the “triple threat” of climate risks, as the firm words it: physical risk, regulatory risk and policy risk. It raised over $1 billion for its debut fund programme, comprising $825 million in equity for the main fund and $200 million in a co-investment programme.
Green has credited the Inflation Reduction Act as a key piece of legislation for the firm’s development. CAI will invest at least 80 percent of its capital in North America, but now the pressure is on to actually deliver the projects. “It is a dramatic accelerator for those that are commercially capable of delivering,” he told NPM in November, “but those additional opportunities are limited to a smaller subset of practitioners that you might believe… if you think it is all rainbows and unicorns for everyone… that is not how it is playing out.”