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Private equity funds remain biggest contributor to impact capital

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Published: 1 March 2022

Private equity funds account for more than half of all impact funds, according to the latest report on the sector by Phenix Capital. A total of €136 billion has been committed to impact-focused private equity funds since 2015

Climate and renewable energy are the two sectors with the largest historical capital commitments from impact private equity funds | Photo by Karsten Würth on Unsplash

In brief

  • €136 billion has been committed towards impact private equity funds since 2015
  • Of the 2,050 funds listed on Phenix Capital’s Impact Database, 1,120 are private equity funds
  • In 2021, private equity funds target global markets (48%), followed by North America (27%) and Europe (16%)
  • Climate is the leading sector, with 18% of capital commitments. Of current fundraising targets, clean tech leads the way with 24%

Private equity funds are the biggest contributor of impact capital, with €136 billion committed since 2015. That’s according to the latest report by Amsterdam-based impact investment consultant Phenix Capital.

Of the 2,050 funds listed in Phenix Capital’s Impact Database, 1,120 are private equity funds.  

Current fundraising shows private equity funds prefer to invest in global markets. In the past, 28% of private equity funds targeted North America, while 23% focused on Europe. This changed in 2021, with 48% of private equity funds targeting global markets, while 27% focused on North America and 16% on Europe.

Historically, climate is the leading sector, with 18% of capital commitments. Of current fundraising targets, clean tech leads the way with 24%, followed by renewable energy (18%), Phenix said. Climate action (SDG13) is the most targeted UN Sustainable Development Goal by private equity funds, who committed more than €13.5 billion to this target. 

Capital commitments to impact funds dropped 10% last year to €27 billion due to Covid, but the sector has shown “remarkable resilience” throughout an unprecedented two-year crisis, Phenix Capital said in its annual report on the industry last month.

Future growth

In an interview included in the report, Keimpe Keuning, executive director at LGT Capital Partners, said the data shows that private equity “can be a source of primary capital for successful growing impact companies”.

“At later stage investing, private equity can fund interesting impact strategies by creating scale. For example, by providing fresh capital to large companies to realise organic growth or to implement buy-and-build-strategies,” Keuning added.

Keuning, of LGT Capital Partners, which has been active in impact investing for over 10 years, is optimistic about the future of the private equity impact investing market.

“Our perspective is that both the impact market and the private equity segment will continue to grow,” Keuning said. “There is great momentum with more and more impact funds and active investors. With continued growth there is also more specialisation, which is evidenced by dedicated thematic funds, for example with a focus on climate, and more regional and local funds.”

The report also includes an interview with Jake Levy, impact investor and investment analyst at Snowball Impact Management.

“We have seen so much capital flowing into private equity recently – and the impact ecosystem is growing all the time,” Levy said in the report. “This is really encouraging and such a contrast even to five years ago. Some sectors – climate tech and sustainable food, to name just two – present real impact and return opportunities, but we also need to tread cautiously as some valuations are stretched right now.”  

Market growth and increased regulations will lead to a “stronger focus on impact scrutiny”, Keuning pointed out.

“In light of the very large financing needs to achieve the Sustainable Development Goals, we welcome this continued market growth and the emphasis on transparency,” Keuning said.

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