Smaller private equity, debt funds ride impact investing wave
Relatively smaller private equity and private debt funds are increasingly offering impact investing strategies to their institutional and wealth clients, a key executive from social investor network AVPN told AsianInvestor.
“There has been an emergence of private equity and private debt funds in the impact investing space,” said Vikas Arora, chief of impact investing at AVPN.
“This is not to say that financial returns are not front and centre but now, they also want their investments to have an equally strong impact. We have seen some private equity funds pivoting from pure financial return to wanting a mix of financial return and impact.”
“I think we could see that trend increasing, especially among the relatively smaller funds,” he added.
AVPN is an investor network that focuses on facilitating the flow of capital towards impact initiatives in Asia.
AVPN
Investors provide funds across different capital stacks, ranging from grants and debts to equity across multiple investments within their own portfolio, to achieve deeper impact.
MORE THAN MONEY
Arora noted that the impact investing trend is more obvious among long-time investment bankers who have decided to set up their own funds of $50 million to $100 million.
“They are driven by not just financial returns but also the desire to do good as well,” he said.
Impact investments aim to generate positive social and environmental outcomes alongside financial returns.
There has been an uptick in demand for such investments, according to the World Economic Forum note released in May.
The Global Impact Investing Network (GIIN) estimates that the size of the worldwide impact investing market has crossed $1 trillion under management since 2022 and is expected to keep growing at a double-digit compound annual growth rate until 2030.
Major pension funds and other institutional investors, along with family offices, are also increasingly committing capital to sustainable investments, leading to more capital being directed toward energy transition and other impact-focused initiatives.
From New Zealand Super and Prudential to CPP Investments and Temasek, several major asset owners have told AsianInvestor about their desire to invest more sustainably.
NEW SKILLS SET REQUIRED
While Arora sees relatively smaller funds riding the impact investing wave in Asia, globally, the big private market players have already jumped in.
Private equity continues to be the most popular asset class for impact investors, although in recent months, impact credit funds have also started to gain traction among institutions and family offices.
EQT, a large private equity fund, closed its EQT Future Fund in March – the largest impact fund in private markets so far, raising about $3.25 billion.
Closer to home, Singapore's Fullerton Fund Management raised $100 million in the anchor close of its Fullerton Carbon Action Fund, a private equity fund that aims to invest in companies accelerating decarbonisation in emerging Asia.
Private equity firms Ardian, Eurazeo and Tikehau have launched nature, biodiversity and other specialised funds focused on clean hydrogen, sustainable agriculture and energy transition funds in credit, real estate and other underpenetrated asset classes.
Large private market players such as Brookfield, TPG Rise Climate, Apollo, Blackstone and KKR have also announced new energy transition funds, the World Economic Forum note said.
Adopting an impact lens, however, can be challenging for finance professionals who have spent a good deal of their career trying to solely assess how to reduce cost-income ratios or improve financial returns.
“It requires a reframing of the situation to understand the impact aspect. For many bankers, it’s almost like going back to school,” said Arora, who is a career banker himself.
Investing with impact requires understanding broader socio-economic needs and interacting with the not-for-profit sector.
“It also helps to have experts with a philanthropic background who can help the financial team think of issues in a different way,” he added.
WEALTH FOCUS
Arora said AVPN is keen to bring together different pools of capital on the same platform, ranging from grantmaking capital from philanthropic organisations and catalytic capital from family offices to money from private equity and venture capital funds and banks.
“Each category of investor has a different orientation towards risk as well the tenor for which they commit their funds. They also have different orientations for returns.”
Family offices, in particular, have been the fastest growing segment in AVPN, the chief executive told AsianInvestor recently.
Very large family offices typically have their own sophisticated platforms to engage in impact investing.
“The not-so-big family offices will use multi-family office platforms and there is a usually a fairly good bench strength in terms of the capabilities of the specialists who work in these multi-family offices.
"And of course, you have the private banks – the very big ones can provide access to the kind of impact investments family offices are seeking,” Arora added.
He believes ivestors interest in impact investing will continue to grow, offering institutions and weath investors a new and evolving asset class.