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For private equity giants, $1 billion is table stakes for entry into impact investing

ImpactAlpha, August 19 – When Apollo Global Management decided to join the rush among private-equity firms to raise impact investing funds, it set a 10-figure target, Bloomberg reported last week.

The $300 billion asset manager prepares to launch its first social impact fund just as KKR is said to have reached its own $1 billion target for its Global Impact Fund. Al Gore’s Generation Investment Management has closed its $1 billion Sustainable Solutions Fund and TPG Growth is in the market with a second, $3 billion Rise Fund, revised downward from its initial $3.5 billion target (but still 50% greater than Rise I).

Partners Group, the Swiss private equity manager, launched its Sustainable Development Goal-aligned fund last year; Blackstone Group has announced an impact infrastructure, real estate and private equity initiative; and $130 billion asset manager Ares is said to be raising a “climate infrastructure” investment strategy to back projects tackling climate change.

Blackstone’s embrace of impact investing brings new scrutiny

Not all private equity funds are created equal, of course. Buyout and growth capital funds target higher returns than safer infrastructure and “social infrastructure” funds (see, “What we know about Blackstone’s impact infrastructure, real estate and private-equity initiative). But the move into impact of the private equity giants suggests at least demand from pension funds, endowments and sovereign wealth funds that need to write large checks (the median impact investor’s assets under management is $29 million, according to the GIIN). It may also reflect growing awareness of the powerful secular trends around environmental and social issues.

Less clear is the extent impact-awareness will influence investment approaches across the rest of the firms (cf. “Infect the host”). “It’s cynical and hollow,” tweeted Graham Sinclair, a principal at sustainable investment advisory, SinCo. “It is the edifice in front of ugly capitalism that will release more extreme investment decisions in the ‘rest of house’ that completely smash ESG,” or environmental, social and governance concerns.

To be sure, the impact of Apollo, KKR and TPG should be judged on their total portfolio, not just on their impact funds. 

  • Post-scandal. The new fundraising efforts also may signal that investors are shaking off scandals at Dubai-based Abraaj Group, which is being liquidated after allegations of accounting fraud, and at TPG Growth, where CEO and Rise Fund co-founder Bill McGlashan was forced out after his indictment in the Varsity Blues college admission scandal. (At least one key investor, pension fund Washington State Investment Board, made public that it would fulfill its $250 million commitment to Rise Fund II.) “I’m so damn torn about this trend,” tweeted Caprock’s Matthew-Weatherly White. “More impact $ = good. Dubious motive/commitment = ?” 
  • Measure better. The onus will be on the firms to measure and report their impact. The market may also be self-correcting. As we’ve written before, fund managers can’t capture that good ol’ impact alpha without delivering real impact. “All investing is impactful, positively or negatively,” tweeted Amy Clarke of Tribe Capital. “So if you believe being positively impactful is the way forward then surely you’re all in.”

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