Private equity firms see robust demand for impact funds, despite headwinds

ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Nov. 8 – Private equity firms may be battling a high interest rate environment and sluggish IPO market. But they’re still raising hefty sums for impact and climate investments.

The latest: TPG has secured $2.7 billion for its third TPG Rise fund. That’s a quarter more than TPG Rise Fund II, but short of the firm’s $3 billion hard cap. TPG’s Jon Winkelried noted “the strong support for both our new and existing LPs” in the firm’s earnings call. The firm has already made more than 20 investments out of Rise Fund III, including a Little Leaf Farms, a controlled environment grower of lettuce, and a recent stake, with TPG Rise Climate, in A-Gas, a provider of sustainable lifecycle management for refrigerant gases. 

Earlier this week, KKR sealed its $2.8 billion Global Impact Fund II, more than twice the size of its $1.3 billion predecessor. And Brookfield Asset Management last week bagged a $6 billion infrastructure debt fund focused on renewable energy. The megafund is already half deployed and Brookfield “could be in a position to launch the next vintage as soon as next year,” said the firm’s Connor Teskey. 

Growth drivers 

“Decarbonization, deglobalization and digitalization” are fueling Brookfield’s growth, said the firm’s Bruce Flatt. Climate solutions, in particular, are a PE bright spot (alongside private credit). TPG said it has invested or committed about 65% of its $7 billion Rise Climate Fund, raised in late 2022, and is “actively working toward launching the next vintage.”

KKR, meanwhile, is building a climate-focused strategy based out of its infrastructure group. The strategy is co-led by Emmanuel Lagarrigue, formerly of General Atlantic’s BeyondNetZero, Charlie Gailliot, who ran Goldman Sachs’ energy transition team, and Neil Arora, KKR’s Asia chief, and will focus on scaling up commercial solutions for electrification and decarbonizing heavy industry, agriculture, transportation and other key sectors. 

“We think that focusing on the opportunity to invest behind the energy transition is a very big thing,” KKR’s Ken Mehlman said of the broader opportunities told ImpactAlpha this week. Resiliency and workforce development are other themes, he said, as nations around the globe look to build secure supply chains for food, clean energy and other critical sectors. 

Headwinds

The fundraises come amid a challenging environment. Deal-making and initial public offerings – which allow funds to exit investments and return capital to investors so they can reinvest – have slowed to a crawl.

“We are very fortunate that the vast majority of our clients and partners around the world continue to increase their allocations to alternatives regardless of how much capital is being returned,” said Teskey.

At the private equity-focused SuperReturn North America conference this week in New York, market constraints were a recurring theme. “The traditional private equity model has really been impacted by everything that’s been happening both on the public and private side,” said BlackRock’s Lisa Sun at a packed session on secondary markets, which enable investors to sell their fund stakes and free up capital.

“There hasn’t been a better time to be a secondaries investor.” 

Roodgally Senatus contributed reporting to this article.