“We’re out and we’re optimistic,” were the words of one manager on the sidelines of the Responsible Investment Forum: Europe this week.
The GP in question was queuing up for coffee and describing how they were on the road with a dedicated global impact fund (the firm’s first). Their optimism paints a different picture to the one revealed by our historical fundraising data. After two riotous years of private markets impact fundraising in 2021 and 2022, during which almost $75 billion was raised, the first nine months of 2023 was a relative desert with just $8.3 billion in fund closes. Q3 saw a paltry $1.9 billion added to the year’s total.
This is a whole-of-market phenomenon, rather than an impact-specific issue. Indeed, sources and surveys repeatedly tell us that sustainability-themed strategies remain high priority for limited partners, many of which are in the early stages of an impact portfolio build-out (CalPERS climate plans being a case in point).
Developments this week support this hypothesis, with managers of different shapes and sizes closing funds or reporting good momentum.
On Monday KKR closed its second global impact fund. While it was not a fast raise – it was on the road for more than two years – it is significant because, at $2.8 billion, it became the largest generalist private equity impact fund to hold a final close to date. TPG soon followed suit, closing its third Rise fund – also a generalist private equity strategy – on $2.7 billion.
On the climate impact front, Brookfield Asset Management intends to hold a first close on Global Transition Fund II, the successor to its giant $15 billion impact fund, before the end of the year. Connor Teskey, who co-leads the strategy, described the LP base for Fund II as “significantly larger” than the debut fund’s: “Not only is the investor spectrum widening, it is growing in terms of size of commitment as well.”
Similarly TPG, which is readying the launch of two different climate vehicles, described a market where institutional investors’ appetite for climate strategies is growing in spite of the wider fundraising slowdown. “[Climate] is too important an area for most large pools of capital to ignore,” said chief executive Jon Winkelried, “We’re seeing really strong engagement.”
Fundraising joy and optimism are not limited to mega funds. UK investor Gresham House just announced an on-target close for its debut natural capital fund on £300 million ($370 million; €345 million). SWEN Capital Partners raised almost twice its initial target for its Impact Fund for Transition 2, closing on €580 million (the target was €300). Female-focused firm BBG Ventures and Paris-listed manager Eurazeo are both telling good news stories on fundraising.
Of course, while these fundraises may be successful, they many not have been easy. Other managers at the conference this week expressed exasperation at the lack of traction their debut impact products were getting with LPs. The market is not homogenous.
Nevertheless, there are certainly reasons to join our coffee-drinking GP delegate in feeling optimistic.