Within private equity fundraising, fund managers use a wide variety of methods to make their vehicles distinctive, offering inducements such as co-investment rights or targeting niche investors through compliance with Sharia law. Firms have also expressed commitments to pursue environmentally and/or socially responsible investments to attract investors, often by becoming signatories to the United Nations Principles for Responsible Investment, which lays out guidelines for acting as a socially responsible investor. These firms naturally go on to raise funds which are committed to acting in a socially responsible manner.
Preqin’s Funds in Market online service currently tracks 2,314 funds seeking to raise capital. Preqin data shows that there are 53 funds in market that have a commitment to social responsibility, targeting an aggregate $7.3bn. The year in which the largest amount of capital was raised by socially responsible funds was 2009, when eight vehicles raised an aggregate $3.7bn in capital, just over half of what is targeted by the funds currently in market. This was a significant increase from 2008, when just $790mn was raised by socially responsible vehicles. Moreover, fundraising dropped off after 2009, and in 2011 only $780mn was raised by socially responsible funds. Beyond 2011, fundraising has remained stable with socially responsible funds collecting between $2.5bn and $3bn a year, despite the number of funds closed each year varying significantly.
Bridges Ventures is the firm that has raised the largest number of socially responsible funds. Including the firm’s first fund in 2002, Bridges has raised five funds in total, accumulating £277mn. Each fund has either met or exceeded its target, demonstrating the demand for socially responsible investments. Development Partners International further highlights this demand, albeit on a much larger scale; the firm has raised over $1bn in aggregate capital. The firm’s most recent fund, African Development Partners II, secured $725mn, substantially more than its target size of $500mn. These two firms also show different preferences in where funds aim to have a social impact; Development Partners International raises funds targeting a number of countries across Africa, whereas Bridges Ventures raises funds that are narrowly focused on the UK.
Of socially responsible funds which have closed since 2008, or are currently raising capital, the most common geographic focuses are Europe, targeted by 40 funds, North America (34) and Africa (29). The large number of funds focused on Europe and North America is unsurprising given the importance of those two regions in the private equity industry, but Africa is an unusual focus for private equity funds. Only 2% of all the funds in Preqin’s dataset focus on Africa, but 19% of those with a commitment to social responsibility target the region. This perfectly outlines the socially responsible nature of such vehicles, looking to invest in areas that are in the most need of development.