Last week, EQT announced the final close of EQT Future Fund, its private equity impact product. Having collected €3 billion in fund commitments, it is the largest generalist impact fund raised to date.

The fund’s story reveals much about the state of impact investing as a trend. To longstanding followers of the impact scene, it may still be surreal to see large-cap private markets firms raising multi-billion vehicles in the name of people and planet. Though EQT can claim to have the largest fund of its type, others are not far behind: the likes of TPG and KKR have raised vehicles over €2 billion. Independent managers such as Summa Equity have also raised comparable amounts.

And yet, EQT Future also demonstrates how impact remains a small slice of the wider market. Compared with the typical private equity vehicles raised by large cap GPs, EQT’s impact offering is small fry: the firm itself closed EQT X, its flagship strategy, at €22 billion just last month. For large firms – even New Private Markets award winner EQT – impact plays second fiddle to conventional strategies.

Equally, there is a feeling that the asset class has not grown at the rate that was hoped. EQT originally sought to raise €4 billion for the strategy; to manage only three-quarters of that total after three years on the road could be seen as inauspicious for those hoping to see impact enter the mainstream.

Head of impact Jen Braswell told NPM that the “trajectory of growth of impact-focused capital” in the years since did not match EQT’s expectations when the fund was launched. Cibus Capital’s Rob Appleby – whose firm recently raised $645 million across two funds targeting sustainable agriculture – made a similar observation to NPM.

Of course, much of this can be attributed to the economic situation and more general fundraising malaise of the last 18 months. Impact funds were vulnerable to the broader headwinds – $28.3 billion was raised for impact funds in 2023, just over half the $46.3 billion raised in 2022 – and so it is not surprising that targets set in 2021 proved unachievable. That institutional investors were willing to allocate to impact over more proven strategies at all is testament to their appetite to generate more than just financial returns with their capital.

EQT’s progress also shows that unanswered questions remain about impact in practice. Three years on from launch, the firm is still working out how to make impact-linked carry work, Braswell said. Tying financial incentives to impact has been a discussion point for a while, though views continue to differ substantially among LPs. Some view it as the “gold standard”, but others have fundamental concerns. New York State Common Retirement Fund’s Andrew Siwo described funds with impact-linked carry as “unappealing” on stage at NEXUS 2024 last week.

Overall, the prevailing feeling is one of cautious optimism. Impact as an asset class is likely to emerge from the current fundraising downturn stronger than it entered it: half of large asset owners plan to increase their exposure to “ESG/sustainability” strategies, according to a Mercer survey. When it does, its scale up could be poised to accelerate.