Pension funds, charities, endowments and family offices are creating specific impact and climate investing allocations across private markets, say market participants.
Universities Superannuation Scheme, a pension fund for UK universities with assets worth £80.6 billion ($106 billion; €94 billion), has created a separate allocation for climate impact investing across private equity, private credit and infrastructure asset classes.
“We will try to help issues across the climate spectrum, especially investments in sustainable infrastructure – solar or windmills – or growth investments into new technologies like electric vehicles,” said Teia Merring, USS’s investment director for private equity, at PEI Media’s Women in Private Markets Summit. Merring did not disclose the size of USS’s impact allocation.
Sunaina Sinha, global head of private capital advisory at Raymond James, is seeing “many LPs” with an impact allocation “outside of their main fund investing programme”. “It’s starting with state pension plans, corporate pension plans, endowments and certain foundations – LPs who are fiduciaries of money for populations,” Sinha tells New Private Markets.
“These are mostly private equity allocations, and then some LPs are being more creative and doing real asset or infrastructure impact,” Sinha says. “We have raised a number of funds in the food and ag space that have been very positive on impact. [One food and agriculture fund] has gone into the impact bucket of dozens of LPs.”
Most impact allocations Cambridge Associates sees are by endowments, foundations and families seeking to invest in renewable energy infrastructure and climate technology, Laura O’Brien, investment director at Cambridge Associates, said at the Women in Private Markets Summit. “I think they see it as an opportunity to get into this space and the returns are there – they’re proven. Technologies and infrastructure around electric vehicles are just going to grow, so it’s just a growth strategy really.”
Pooja Patel, a real estate principal at fund of funds manager Stepstone, has also come across social impact buckets: “Many of our LPs are now looking at the impact they can create. They have a separate affordable housing strategy or an allocation to invest in the local community, or just a generic ESG strategy.”
Other investors have also created dedicated impact buckets
- The UK’s Environment Agency Pension Fund has allocated 9 percent of its portfolio – £363 million – to its climate solutions fund, of which £46 million is invested in private markets, according to its 2021 report. EAPF is aiming to increase this allocation to 17 percent by 2025.
- Australian superannuation fund HESTA has committed AU$70 million ($50 million; €44 million) to its Social Impact Investment Trust to invest across public and private markets.
- Welsh public pension fund Clwyd has a 4 percent target allocation to ‘impact/local’ investing in private markets across asset classes.
- Global Endowment Management, a US-headquartered chief investment office for charities and foundations, has an approximately $100 million private markets impact investing programme, New Private Markets understands.
- Dutch pension fund manager PGGM has a €500 million investment target for SDG-aligned impact investments between 2019 and 2024.
- Glenmede, The Pew Charitable Trusts’ investment management function, has a private markets impact vehicle for clients “to give a diversified bite at things that are broadly positive for the world”, Jennifer Wong, then-investment manager at Glenmede, said in a report by Campbell Lutyens this year.
- Kempen, a Dutch asset manager for pension funds that takes LP positions, has a global impact pool “to contribute to solving global problems around food, water and climate”, the pension fund said in its 2020 impact report. A total of 25 percent of this fund is allocated to private debt, 22 percent to venture capital, 22 percent to infrastructure and 21 to private equity. Kempen’s GIP generated -0.4 percent returns in 2020.