Schroders’ launch of Climate+ this week – the UK’s first Long Term Asset Fund – was a watershed moment for several reasons. If LTAFs take off as ELTIFs (their EU parallel) have, this could be the start of a stream of private wealth and defined-contribution pension capital into private markets.
Although Climate+ is geared towards UK DC pensions, the FCA-regulated LTAF structure is also designed to give individual investors access to illiquid private markets funds.
It is telling that the first LTAF is a climate impact fund. Impact fund managers are increasingly turning to individual investments as an untapped pool of capital – notable examples are BlackRock, Tikehau, Mirova, Alliance Bernstein, Commerz Real and Carbon Equity.
Such funds seem to be in high demand: CommerzReal’s Klimavest, for example, reached €1 billion in capital raised in January; and Carbon Equity’s debut VC fund-of-funds closed 64 percent above target in December.
Access to the returns from private markets funds is important to many individual investors, but impact funds offer something potentially more compelling. Case in point: private pension trust Cushon, Climate+’s anchor investor, hopes the fund’s impact element will be a stronger draw for members – after previous messaging around the importance of saving more for retirement “had a detrimental effect” on member engagement, according to Danny Meehan, proposition director at the pension trust.
The way funds are “bought” by individuals differs from the way institutions buy them. “A lot of retail investors primarily rely on referrals from their network, whereas institutional investors [typically] rely on their usual due diligence,” Jacqueline van den Ende, chief executive of Carbon Equity, told New Private Markets last month.
Reporting impact performance is different too: from several conversations New Private Markets has had with retail impact fund managers, individual investors seem to engage more with qualitative impact stories than with quantifiable KPIs and benchmarks. Cushon will provide its members with “strong messages” about impact “that people can relate to” rather than KPIs on the fund.
This is in contrast to the direction of travel within the institutional space, where standardised quantitative and comparable reporting is seen as essential to the sustainability and continued growth of the market. This week, for example, the Global Impact Investing Network launched the second of its impact performance benchmarks; this one for the agri sector. Investors can now quantify the difference they have made, compare their performance to peers and previous time periods. Stories are useful, but data is essential.
Greenwashing is seen by institutional LPs as the biggest threat to impact investing, according to a Rede Partners’ survey released this week. Promises of impactful investments that turn out to be anything but would undermine the market. Meanwhile, comparable, quantitative impact data is seen one of the best antidotes to greenwashing. If managers are held to account on their impact promises with measurable, verifiable data, then investors in funds – retail or institutional – will keep faith.
Positive stories are an important way to get individuals to engage; impact data will be a necessary part of what keeps them engaged.