Nuveen’s private equity impact debut – which saw it close its first global impact fund on $218 million in February, missing its original $400 million target – has not dampened the firm’s confidence in its broad, global impact strategy.
“Not hitting the target is really not any kind of failure, in our view,” Rekha Unnithan, co-head of private markets impact at Nuveen, tells New Private Markets. “We chose to be prudent, take our LP capital and focus on actively investing it. We launched the fund in February 2020 when we didn’t know the world was going to fundamentally change, and we raised the entire fund on Zoom.
“So, while we could have kept the fund open for longer than the typical fundraising period, we did the right thing by our LPs so that we could focus on investing now and then come back to market at some point with our next fund and hopefully raise it with a much more normalised version of fundraising, without Zoom.”
Danish insurance company Velliv is the only investor Nuveen has announced. Nuveen’s strategy encompasses minority stakes in growth companies in emerging and developed markets. Nuveen plans to invest around half the capital for environmental impact and half for social impact – although Unnithan noted that most social impact investments will also have climate resilience and just transition aspects.
The fund’s latest investment is in Indian financial inclusion company Kinara Capital. It has also invested in battery technology company Advanced Battery Concepts and will contribute to Nuveen’s $100 million climate commitment in partnership with the Shell Foundation.
Impact track record
Unnithan joined Nuveen as an impact portfolio manager in 2012, the same year Nuveen launched its first public markets impact fund. The firm’s global fixed income impact strategy now manages $7.8 billion, according to its 2021 impact report. “Our approach for the past decade has been a balanced social and climate focus, and we’ve had great performance, we’ve built great conviction, and our team has built up the expertise to go after these themes and sectors,” says Unnithan.
“I’ve been in the sector since before it was cool. I find myself in a very unique position because now this market has really grown and blossomed and everybody wants to be in it. Everybody thinks you can put billions of dollars to work overnight. I’m a bit sceptical that it’s that easy. If it was that easy, we wouldn’t have these problems in the world.
“This is hard work. It’s really interesting and it can be very rewarding, but you’ve got to be really careful about company selection, structuring and be active in the industry. Why do they do what they do? How did they come up with this idea?
“As these companies grow in scale, they’re very attractive targets for investors, but they want investors that come with a level of understanding about what that company does and why what it does is important, and can help fulfil that vision with them.”
Financial inclusion focus
Unnithan is speaking to New Private Markets from India, where she is spending two weeks attending board meetings for the fund’s newest portfolio company, Indian microfinance provider Kinara Capital, and Annapurna – another microfinance provider based in India. “Financial inclusion is definitely the most mature and the largest exposure we have within our inclusive growth stream,” says Unnithan. This includes “profit-driven and purpose-driven” companies providing microfinancing, payment services and fintech for lending, investing and saving.
Concentrating on climate
Nuveen saw a greater amount of investor interest in the fund’s climate strategy, “particularly from the more developed market LPs that have significant mandates to invest in climate”, says Unnithan.
“Social [impact] is sometimes harder for people to fully grasp and get behind. But there was an appreciation that some of these social-oriented businesses can have a very strong adaptation angle to climate change mitigation. And with global social inequalities continuing to grow, the ability to make an LP commitment to our fund, which gave a balanced exposure to both developed and growth markets, was seen as desirable.”
She continues: “Certainly, we had some LPs who preferred one or the other [social or environmental impact] and couldn’t quite wrap their heads around our first fund. They’re certainly keen to engage with us on our next fund when we come back to market, but they wanted to see how those [social and environmental impact] themes played out first.”
Giant asset managers’ fundraising targets for climate-only funds have eclipsed their targets for general impact funds over the past year. TPG, for example, raised $7.2 billion for its Rise Climate fund last year and has just returned to market with a much smaller $3 billion target for Rise III, which has a social and environmental strategy.
Brookfield Asset Management’s Global Transition Fund is set to close on $15 billion, exceeding its $12.5 billion hard-cap. Might Nuveen have an easier time raising its next impact fund if it focuses only on climate?
“GPs who follow what investors want for themes is all well and good, but what LPs want at the end of the day is your ability to invest successfully and drive returns,” says Unnithan. “Everybody’s chasing climate deals and valuations are really high. At some point, not all those climate companies will survive and thrive.”
“It’s too early to say” what Nuveen’s next impact fund will focus on, states Unnithan. “Social problems and gaps of access will continue to be a major theme [for Nuveen] going forward. But this emphasis on climate adaptation and mitigation is something that will resonate across everything we do. We hope to convince LPs of the importance and attractions of social themes. I think LPs will get there. They need to see more funds raised and successfully exiting – which Nuveen is doing.”