Impact Funds
Can anyone that works at an impact fund talk about their experience? What’s lifestyle, comp, etc like?
Heavily interested in impact investing
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What asset class? What impact sector? Geography?
Anyone have a perspective about whether institutional PE Impact Funds are a fad or the beginnings of a longer-term secular tailwind within the industry? Some of the larger funds that have started impact funds - TPG Rise, Bain Cap Double Impact, Apollo Impact, KKR Global Impact, EQT - raising ~$4.5bn fund currently.
Seems to be longer lasting trend if we broaden out to impact/ESG/climate change etc.
As you mentioned there are a number of established managers that are raising these funds. The extent to which they are “genuinely” impact is questionable. But that means LPs should be able to keep allowing to possibly slightly lower returning “impact” funds but allowing these established brand names to monetize their deal flow.
I think the advantage of these impact funds is probably a better employee value proposition.
I spend probably 75% of my time on impact funds right now and would say that while I don't think it's a fad, it's certainly a money grab, particularly among the megafunds (all the ones you mentioned above) and large asset managers (looking at you, BlackRock). If you look at the portfolios of the impact megafunds, you'll see that there are a lot of deals done alongside the flagship funds which goes to show that this is really an AUM grab... but there's just enough of a difference in portfolios so that the GPs have plausible deniability on that front. I know one PE fund very well that's currently raising an impact strategy where the managing partner, once he has a few drinks in him, is quick to question the science around climate change. You think he cares about how much impact his fund is going to create beyond the carry that goes into his bank account?
Meanwhile, the asset managers are raising all sorts of impact strategies across asset classes and then charging at least 2x the "non-impact" strategy fee. For example, see IVV (the BlackRock S&P 500 ETF) at 0.03% vs. DSI (the BlackRock MSCI KLD 400 Social ETF) at 0.25% and compare the portfolios... are they different? Sure. Meaningfully? I'll let you be the judge of that.
I pressed post too quickly. This isn't all he cares about. It's actually just the cherry on top because he's already wildly rich so really, what's more carry on top of the carry he already gets? The impact is really the additional 2% management fee that he can charge on this additional AUM while needing to add almost no additional headcount or infrastructure. Almost all of it goes straight to the bottom line. Who needs carry when you can just give yourself a raise for doing almost no additional work?
In general, this is why I don't like investing in GPs who have multiple strategies and don't have dedicated teams. Multiple management fee streams all accruing to one team are a disincentive for outperformance.
I used to work at an extremely successful impact fund with PRI mandates (so you actually have to have dedicated impact measurement resources). For as many managers as there are like the one you mentioned who isn't really interested in impact, there are 2-3 that actually care about impact.
Within that 2-3, there is/are, 1-2 (let's say 1) manager who really does believe in their heart of hearts they're interested in impact, but they have trouble passing on items with strong returns but meh impact and/or they really are able to delude themselves into measuring "impact" that isn't directly related to their investment / portfolio company's business model / isn't actually a meaningful impact metric, etc.
So while my taxonomy isn't perfect and don't go quoting the %ages I've quickly just put on page, my point is this: I think people who are self-aware in their indifference to impact are not that common (there are so many people who are actually interested in impact, particularly the deal makers / MDs if not the actual fund head honchos), but there are plenty of people where the impact is diluted but it's not malicious, it's just because managers get caught up in the game of investing and success and the true spirit of impact starts to slip because they may not always be bound by PRI or something to hold them accountable.
You take Gates money and you have to at least put a ton of thought into impact measurement, even if it's finessing, whereas you take Calpers money and they could not give one single flying fuck what your impact metrics are. Wall of text, early on a Monday, not perfect, but you should understand my points.
Oh I agree. There are plenty of funds out there putting money into companies generating real impact, measuring it in ways that are helpful and useful, and making good money doing it.
They aren't TPG, Bain, Apollo, KKR, Blackstone, EQT, or anybody else who's a huge investment platform that suddenly one day decided to raise a multi-billion dollar impact fund. They're the funds where impact is their only strategy and they're tracking real impact KPIs (whether IRIS+ or otherwise) to hold themselves accountable (side eye at TPG's Impact Multiple of Money), not just telling a story about why this company does something that maybe is kinda sorta nice for the world. KKR Impact's investment in Burning Glass Technologies is a perfect example of the latter, where KKR goes "oh hey look this relates to two UN SDGs" and hopes that nobody actually looks at what those SDGs are trying to achieve below the headlines.
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