Private Equity Impact Investing: Who’s In and Who’s Next

 

Marine Cole, Contributing Writer

The world of impact investing is moving and growing fast these days. Some sponsors, such as TPG, are already onto their second impact funds such, while Bain Capital earlier this year was reported to be gearing up to raise a second. 

Others, including Blackstone Group, have recently said they are building capabilities to invest in impact but details on fundraising are still scarce. There’s ample room for expansion considering that this market, which estimates from the Global Impact Investing Network put at $502 billion, could grow to be as big as $26 trillion, according to the International Finance Corporation.

It is still early stage in the growth of impact investing and approaches vary greatly. The industry continues to struggle with the measurement aspect of impact, especially due to the lack of uniform standards and the competing and often confusing array of methodologies being used.

While many private equity managers, particularly the large ones, prefer building their own impact investment teams, others have opted to buy into the market. As it gets later in the game, the acquisition route could become more popular. Following is a round-up of the main private-markets players in impact and those who could soon follow suit.

  • Early-mover TPG closed its first Rise Fund on $2 billion in 2017, focusing on agriculture and food, education, energy, financial services, healthcare, infrastructure and technology. The firm is raising its second fund, but recently lowered its target to $2.5 billion from $3 billion after Bill McGlashan, founder and chief executive of the Rise Fund, got caught up in the college admission scandal and stepped down. Recent investments from TPG Rise include Zipline, which offers a drone delivery for healthcare services.

    TPG Rise has been on the forefront when it comes to measuring impact and early on created a proprietary assessment methodology to calculate an impact multiple of money, using qualitative and quantitative assessments. In January, it spun out its impact measurement arm into Y Analytics. TPG Rise is led by co-managing partners Maya Chorengel and Steve Ellis.

  • Compared with TPG, Bain Capital raised a more modest $390 million for its debut Bain Capital Double Impact Fund in 2017. The strategy, led by former Massachusetts Governor Deval Patrick, focuses on three verticals: sustainability, health and wellness, and education and workforce development. There was a news report in March that Bain may launch fundraising for the second vehicle this year, but we weren’t able to confirm that. Bain has partnered with B Lab, a nonprofit organization that rates the environmental and social performance of companies and funds. Based under the GIIRS (Global Impact Investment Rating System) rating standards, B Lab rates each company, and provides sub-ratings in categories focused on governance, workers, community, environment and customers. 

  • KKR began focusing more seriously on impact investing in 2018 and has raised more than $1 billion for a debut impact fund as of August, with a final close yet to happen. Through its Global Impact Fund, the asset manager intends to invest in lower mid-market companies focused on workforce development, agtech, water, waste management and energy. Recent investments include Barghest Building Performance, a Singapore-based provider of energy savings systems; and Burning Glass Technologies, a real-time labor market data source. The team is led by Ken Mehlman and Robert Antablin, co-heads of KKR Global Impact. KKR says it plans to measure the impact of its investments “on one or more of the UN Sustainable Development Goals by using indicators defined by third-party reporting frameworks where possible”.

  • Blackstone announced the launch of its impact investing platform in May; the platform is part of its Strategic Partners Group. It hired Tanya Barnes from Goldman Sachs to lead the team. The group focuses on health and wellbeing, financial access, sustainable communities and green technologies. Details regarding a potential fund are still unknown and Blackstone hasn’t disclosed how it intends to measure the impact of its investments. Blackstone wasn’t available to comment on fundraising and measurement for its impact efforts. 

  • Apollo Global Management is the latest private equity firm to plan an impact investing unit, Bloomberg reported in August. It is seeking to raise at least $1 billion for its debut social impact fund. Details are still scarce regarding the strategy of the fund, the team that will lead the strategy and the methodology Apollo will use to measure impact. Apollo declined to comment.

  • Morgan Stanley raised more than $125 million in 2017 for it first global impact fund of funds, PMF Integro Fund I, which is managed by AIP Private Markets. The fund focuses on reducing the effects of climate change and improving access to jobs, education and healthcare in developing and frontier economies. 

  • Hamilton Lane is raising an impact fund, according to a regulatory filing with the Securities and Exchange Commission from a year ago. But its size and the team leading the efforts are still unknown.

  • PG Impact Investments, backed by Zug, Switzerland-based Partners Group, closed its first fund nearly a year ago at $210 million. PG Impact invests in the debt, mezzanine and equity of businesses and in funds focused on financial inclusion, affordable housing, energy access, agriculture and food, and health and education, in alignment with the UN Sustainable Development Goals. It is led by co-founder and CEO Urs Baumann and has developed an integrated measurement framework to assess the impact of its investments.

  • Schroders, a listed manager in the UK, in July announced that it had acquired a majority stake in impact investor BlueOrchard.

Who’s next?

The obvious mega-firm missing from our list above is Carlyle Group. While it follows responsible investment guidelines, the firm has yet to start raising a fund dedicated to impact investing. Bloomberg recently reported that it has hired someone to lead the way on impact, but Carlyle didn’t respond to a request for comment. Other large multi-asset managers yet to announce impact fundraising plans include Warburg PincusHarbourVest Partners and Advent International in the United States and, in Europe, CVC Capital PartnersArdian and EQT, which is planning to go public. 

Don’t be surprised if sector-focused giants like Thoma Bravo and Vista Equity Partners enter the fray. This is one trend that few can afford to sit on the sidelines.

 
Amanda VanNess