Hamilton Lane has closed its second impact fund at $370 million – just shy of its $400 million target, two years after it launched fundraising. While short of its initial target, the fund is nearly four times the size of its predecessor.
“We’re really pleased to close at that level,” David Helgerson, co-head of Hamilton Lane’s impact business, told New Private Markets. “It’s been a very interesting macro environment… But it’s a cautious environment.”
Several impact fund managers’ raises have been impeded by the macro-environment, with LPs tightening their belts on private equity: Two Sigma and Energy Impact Partners closed impact funds below target earlier this year, while TPG Rise III may miss its $3 billion target, chief financial officer Jack Weingart said in May.
Hamilton Lane launched the fund in April 2021 as the successor to HLIF I, which raised $98 million. The fund spans buyout, growth, late-stage venture and real assets investments for environmental and social impact. It has made nine investments so far, according to a statement from the firm last month.
As well as macroeconomic conditions, Hamilton Lane’s fundraise was impacted by some investors’ continuing appetite for segregated mandates – rather than pooled funds – for their impact portfolios. Since commencing fundraising for Impact Fund II, Hamilton Lane has raised “over $500 million” for sustainable themes in segregated mandate accounts – investors creating pools of capital for the firm to invest directly in portfolio companies – according to a press release from the firm.
There are several reasons that many investors have this preference. “Some of it is just excess demand,” said Helgerson: some investors have a threshold for the proportion of a fund that they occupy, and put the remainder of their impact allocation in a separate account.
The wide range of investors’ preferences for impact includes those that are too particular for a pooled vehicle at one end, and those that are too agnostic at the other. “Every investor has their own goals, portfolio needs and comfort levels with their perceptions of risk and return. There are faster adopters and slower adopters to impact and sustainable strategies,” said Helgerson.
On the more agnostic side, “some investors say, ‘I’m looking for both attractive investments, and to avoid exposures such as traditional fossil fuels, or areas that present greater risk or have potentially bad headline exposure,’” said Helgerson. For example, “we have some major sovereign wealth fund clients who want to shift everything into sustainable strategies. This allows them to take a broad view and focus on making sure that they’re investing sustainably, versus being narrowly-focused on exactly where that capital is going”.
Other investors have very specific impact goals or thematic preferences, such as “digital health or energy transition”. “One of the challenges of social impact investing is making it relevant to the ultimate investor, as there is a breadth of diverse opportunities to support,” said Helgerson.
Hamilton Lane’s impact fund “targets broader, more universal areas of social interest… to appeal to diverse group of investors”, but many investors will still prefer their pools of capital to be separately managed to achieve more specific impact.
Separately managed accounts also do not need to be categorised by Articles 6, 8 or 9 of the SFDR – which means capital can be invested in “great companies… that are very sustainable and world-positive, but that don’t fit within [an Article 9 fund]”. Impact Fund II is an Article 9 fund, so it cannot be invested into companies that are not already “sustainable”.
“Separate accounts also allow a bit more flexibility or customisation and for clients to weigh in and be involved in the portfolio buildout,” Helgerson added.
Does this mean Hamilton Lane will focus its impact and sustainable investing business on separately managed accounts rather than raising pooled funds in the future? Helgerson said via email: “We believe there are long-term, secular, macro drivers that will continue to make the themes we are investing in across our impact and sustainable strategies attractive… We’ll evolve to support our clients with strategies that make sense for the economic environment at the time.”