Impact investing has become trendy among private equity firms as the sector seeks to redeem its reputation for debt-fueled and externality-laden profits.
When Impact Engine created its first private equity fund in 2019 to allocate capital to impact funds and ventures, it was a lonely field. The firm’s partners identified just six impact-focused PE funds it could allocate capital to. Today, there are more than 150 with some kind of impact strategy, says Impact Engine’s Priya Parrish. The differentiator for Impact Engine: whether the entire firm is committed to impact, not just a fund or two.
With the close of its $85 million second fund, Impact Engine is doubling down on its “purpose built” strategy. Impact Engine Private Equity Fund II is backed by Builders Initiative, the Kellogg Foundation, and the Surdna Foundation.
The second fund is nearly three times the size of the firm’s first PE fund and its biggest fund yet – validation, says Parrish, “that impact is a significant opportunity in the middle market as well as of the firm’s track record as a pure play impact investor producing PE-like returns.
Pure play
The Chicago-based impact asset manager and public benefit corporation has grown from a $500,000 accelerator fund in 2012 to a diversified investment firm with $240 million in assets.* The firm invests in companies and funds pursuing health equity, environmental sustainability, and economic opportunity, across all stages, from venture to private equity and buy-outs.
“Our firm began in venture capital, but to do the same thing in private equity, now in the middle market, is a really important milestone for the industry, as well as our firm,” she told ImpactAlpha. It shows, she said, that “impact investing is very achievable across all stages of the business, all asset classes.”
The fund has allocated capital to funds including Chicago-based Vistria Group, which invests in health, education and financial services, Ara Partners, a growth and buyout investor in decarbonization, and NextBillion Capital Partners, which invests in growth stage technology companies serving consumers and businesses in emerging markets.
Direct investments include Jetty, which helps lower move-in costs and insurance for renters, Acelero Learning, an early childhood education platform serving low-income communities, and Perfect Power, which acquires, develops, owns and operates clean electric power assets.
The firm is developing an impact scorecard that evaluates fund managers at the firm and fund level.
*This post has been corrected. An earlier version incorrectly stated that Impact Engine’s AUM was $140 million.
