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Impact Investing in the Private Equity Industry – October 2013

by Laura Duce

  • 09 Oct 2013
  • PE

‘Impact Investing’ within the private equity industry is defined as investing with the intention of generating not only financial returns, but a positive social and/or environmental impact as well. This can incorporate a variety of focuses including clean technology and renewable energy, education, healthcare, and social housing, and is often specifically focused on developing countries’ progression. Preqin’s Funds in Market product shows that there are currently 74 impact investing private equity funds in market, collectively targeting close to $15bn in capital commitments from investors.

So far in 2013, 16 impact investing funds have held a final close, garnering a collective $2.0bn in investor capital. Despite only beginning to move through Q4, this year’s impact investing fundraising already appears to be more successful than the total from the previous year, when 18 funds managed to raise a collective $1.4bn. The relatively larger amount of capital raised by a smaller amount of funds indicates that the average size of impact investing vehicles has increased since last year. However, 2013 to date is yet to prove to be the strongest year historically for impact investing; in 2010, an impressive 27 impact investing funds held a final close, collecting an aggregate $4.4bn. 2008 was also a significant year for social impact fundraising, with 22 vehicles raising a total $3.7bn in capital commitments.

The largest impact investing fund closed in 2010 was the IFC African, Latin American, and Caribbean Fund, with a final close size of $1bn. Comparing this with 2013 fundraising so far, the largest fund to have closed is the InfraMed Infrastructure fund, with a final close size of €385mn, or just under $500mn, showing that impact investing funds appear to have significantly decreased in size, as well as number, since 2010. The InfraMed Infrastructure fund focuses on environmentally and socially responsible investments across the Southern and Eastern Mediterranean basin regions, as well as Egypt and other countries in the MENA region.

Despite the apparent decline in both number and size of social impact funds being raised over time, it is notable that there are seven funds currently in market targeting at least $500mn in investor capital, and exactly 50% of the impact investing funds in market have so far held at least one interim close, showing that investments of this type are still proving to remain somewhat popular. These funds in market have so far garnered $3.4bn in investor capital commitments from interim closes.

The largest impact investing fund currently in market is being raised by the same fund manager that closed the largest such fund in 2010: IFC Asset Management Company is seeking $1.2bn in capital commitments for the IFC Global Infrastructure Fund. The vehicle focuses on non-BRIC emerging markets for investment in infrastructure projects and companies across different infrastructure sectors. The second largest social impact fund currently in market is Australia New Zealand Forest Fund 2, which has an AUD800mn target and invests in a portfolio of forestry and environmental assets in Australia and New Zealand.

Preqin’s Funds in Market data shows that although impact investing fund sizes have decreased somewhat since 2010, fundraising appears to still be prominent, with a number of large target impact investing funds in market and a significant amount of capital garnered so far this year, with $5.4bn collected in 2013 to date, including final closes and interim closes.

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