ImpactAlpha, May 21 – A spate of announcements make for a trend in private equity: bigger raises for “impact” and “sustainability” funds, and bigger ticket sizes for deals explicitly targeting global challenges.
The latest example: the $1 billion Sustainable Solutions Fund just closed by Generation Investment Management, the $22 billion fund manager founded by Al Gore, the former U.S. vice president, and David Blood in 2004. “Sustainability companies are winning,” Generation’s Lilly Wollman told ImpactAlpha.
Beyond climate and low-carbon solutions, the fund will target human health, financial inclusion and the future of work. “The pure investment opportunity is extremely attractive today, and broad,” Wollman says.
The fund is Generation’s third private equity fund, and first to crack 10 digits. Billion-dollar impact and sustainability funds form a small club. TPG Growth raised $2 billion for The Rise Fund and reached a first close of about $800 million for Rise II before pausing fundraising. TPG Growth also manages the $1 billion Evercare Health Fund acquired from Abraaj this month.
KKR is targeting $1 billion for its Global Impact Fund. Blackstone and Ares Management have launched funds. LeapFrog Investments last week touted its $700 million third fund as “the largest-ever private equity fund raised by a dedicated impact fund manager.”
Generation, primarily a public-equities investment manager, has raised two Climate Solutions funds of $520 million and $680 million. The new Sustainable Solutions Fund will do deals of $50 to $150 million. It has a $60 million stake in Andela, the African tech-talent connector and a $55 million investment in Sophia Genetics, a Swiss firm with an AI platform to improve medical diagnoses.
“We are at the early stages of a technology-led sustainability revolution,” Gore said, at “the scale of the industrial revolution, and the pace of the digital revolution.”
Generation’s billion-dollar fund signals “the market opportunity is here for sustainability,” says Wollman.
Generation charts the “sustainability opportunity” each year in its Sustainability Trends Report, which tracks more than 200 indicators of challenges and opportunities in energy, urban mobility, responsible consumers, health and wellbeing and the future of work.
A map of “robot density,” for example, shows where automation is uprooting low-skilled jobs. Online skills marketplaces and up-skilling platforms are matching talent supply and demand.
Cancer survival rates are improving, showed this year’s report. But rates of non-communicable diseases are rising in emerging markets. Life expectancy is diverging by class.
Previous Generation private equity deals include pay-as-you-go off-grid solar firm M-Kopa, as well as green-products company Seventh Generation, which was acquired by Unilever in 2016. The portfolio also includes firms with less obvious sustainability missions including cloud-based project management firm Asana and DocuSign, which digitizes legal agreements.
Wollman say the companies enable remote-based work, reducing carbon footprints, and both reduce resource use. The companies also operate with strong values and governance policies, she says. “Sustainability means what companies do, but also how they operate.”
Generation’s Sustainable Solutions Fund will take ownership stakes of about 10% to 30% in global growth-stage companies. The larger-sized fund means more capital available to later stage impact and sustainability companies, and exit opportunities for early investors.
One of the Sustainable Solutions Fund’s first two deals is a $60 million investment in Andela, announced in January. The New York-based company builds distributed engineering teams in Africa to meet the technical talent needs of global companies. Earlier investors in Andela include Spark Capital, Chan Zuckerberg Initiative, Omidyar Network, Learn Capital, Salesforce Ventures and DBL Partners.
A second deal from the new fund is a $55 million investment in Lausanne, Switzerland-based Sophia Genetics, which improves medical diagnoses by facilitating knowledge sharing between hospitals through its artificial intelligence-enabled platform.
Generation did not disclose the fund’s limited partners; Wollman did note the set of institutional investors includes clients that have invested with the firm over two decades. Wollman says Generation’s continuum of privately and publicly invested capital allows it to be a long-term partner to its portfolio companies, and drive key sustainability indicators over time.