Impact firm North Sky Capital has launched the latest vehicle in its impact secondaries strategy, Clean Growth VI. The firm is targeting $350 million and has so far raised $91.2 million, according to PEI Media’s database. North Sky – 15th in last year’s inaugural Impact 20, New Private Markets‘ ranking of the world’s biggest private markets impact fund managers – declined to comment on Clean Growth VI.
“The number and size of impact secondary opportunities… has increased dramatically in recent years,” founder and chief executive Scott Barrington told New Private Markets via email. This is a consequence of investors increasing impact allocations to primary private equity funds and the primary impact market maturing, said Barrington. “With a near-term opportunity set that exceeds $500 million, we are just reaching the tip of the iceberg on this specialty secondaries market.”
Investors seek liquidity for a variety of reasons, such as if “impact policies evolve, portfolio construction deviates from expectations, investments financially underperform, CIOs change and impact champions take new roles, manager relationships are consolidated and assets mature and near an exit”, said Barrington.
Secondaries funds also “help alleviate liquidity concerns for new investors who want to dip their toe in the impact or ESG water. These new investors know that we will be there for them to provide an early exit path should their priorities change a few years down the road. Viable exit alternatives help create a larger investor universe in which investment dollars are eventually re-invested in new opportunities”.
North Sky firm has completed investing Clean Growth V, a 2018-vintage fund which raised $220 million. Clean Growth V’s final acquisition, announced last week, was an LP interest in a 2018 climate-tech fund. The Clean Growth strategy invests in North America across environmental themes including climate technology, cleantech, food and agriculture and healthy living. The Clean Growth strategy has generated net returns of 22 percent IRR up to the end of 2021, according to Barrington.
“Our focus has recently pivoted from traditional LP secondary purchases to preferred equity structured transactions,” said Barrington. This is because “the reporting lag of private equity funds has created a widening of the bid-ask spread. LPs still think their LP interest should be valued at the value reported in the most recent report, while buyers know the transaction prices should be generally lower due to pricing signals in the stock market, inflation and macroeconomic factors.
“However, a preferred equity solution will work in these times of price uncertainty because buyer and seller don’t have to agree on the value of the asset today, but rather only how they will distribute future proceeds as the portfolio is liquidated in the future.”
North Sky also has a “sustainable infrastructure” strategy. It is investing its third fund in this strategy, which closed at $200 million in January.