Impact and sustainability remain high on LP wish-lists, says Rede survey

Impact and sustainability strategies should continue to experience fundraising tailwinds, according to survey data by placement and advisory firm Rede Partners.

When asked which sector strategies they plan to increase their allocations to over the next 12 months, 27 percent of limited partners cited “Impact/sustainability”. This was more than both tech and industrials (both 17 percent) and second only to healthcare (37 percent).

“It is clear that there is currently real momentum behind impact, with an increasing quantity and quality of funds for investors to select from and deploy capital to and a broad groundswell of enthusiasm from LPs to engage with the sector,” the report noted. It also notes that impact investing has evolved beyond its roots as “‘nice to have’, lower performing bucket” to becoming part of generalist private markets portfolios.

The majority of survey respondents (53 percent) were in Europe with 38 percent were in North America. Views on impact and sustainability were divided between the two regions with much more demand apparent in Europe, where 39 percent were planning to increase their allocations, compared to just 10 percent in North America. Rede suggested a few reasons for the split, including the anti-ESG movement in the US and “an increasing number of quality impact and sustainability focused managers” in Europe.

Healthcare remains the most cited area of increasing LP activity; this is unsurprising, noted the Rede report, as its “unique combination of both offensive and defensive opportunities for private markets investors” are particularly valued in the current economic environment.

The survey also noted a marked increase in investor interest in committing to secondaries strategies, in particular those focused on LP fund stakes (rather than GP-led transactions). This can be interpreted, said Rede, “as a signal that LPs believe we have ‘reached the bottom’ and are expecting valuations and  performance to pick up in the medium term”.

The wider private equity fundraising market will remain challenging, Rede noted. Its “liquidity index” – how the firm classifies future LP appetite and ability to commit to new funds – currently sits at 50, meaning the outlook is flat. “Poor fundraising momentum has meant that LPs have seen a larger number of fund extensions, delayed or cancelled launches and GPs’ inability to reach targeted hard-caps,” the firm said.