The number of new impact public equity funds being launched annually has declined significantly since 2019, according to latest report by Phenix Capital Group.
The number of impact public equity funds launched annually has dropped sharply since 2019, according to a report on the sector from Phenix Capital Group.
Analysis of the consultancy’s Impact Database showed 17 funds were launched in 2021 – when the first wave of the global COVID pandemic was at its height – compared to 26 in 2020 and 28 in 2019.
Phenix Capital said it also recorded slight decreases in total capital committed to almost all funds between the second and third quarters of 2022, and that public equity funds performed at a negative rate in the third quarter 2022, with a median 3-month trailing return of -3.1%.
Phenix Capital holds information on 207 public equity listed funds, which account for 9.2% of its total Impact Database. Public equity funds account for around a third of total capital raised by all funds on the database.
The consultancy has mapped fund allocations across UN sustainable development goals (SDGs), which are widely used in the financial sector to assess investment impact. Climate-related SDGs and other environment-related SDGs received considerably more funding than social-related SDGs. However, the spread across SDGs was more evenly distributed than in other asset classes, Phenix Capital said.
Funding directed towards SDGs relating to climate change accounted for the largest slice of capital commitments by public equity funds targeting impact. SDG 7, which covers renewable energy development and clean energy access, accounted for €74bn of the total, as of the third quarter 2022. Meanwhile, SDG 13, which covers climate action, had attracted €68bn.
That contrasted with more limited funding for social goals. Capital commitments for the four SDGs related to poverty, decent work and economic growth, gender equality, and reduced inequalities totalled €37bn between them.
Meanwhile, emerging markets accounted for less than 2% of total capital commitments. Phenix Capital said reduced investment opportunities due to the lack of initial public offerings (IPOs) in emerging markets and the market-related risks of those regions were contributory factors to that low share of the total. On a regional basis, most of the total capital commitments in the database have been allocated to global funds (€122bn), followed by Europe (€45bn), North America (€32bn) and Asia (€23.5bn).
“Over 80% of capital raised for mid-cap funds has been allocated towards global markets. This differs greatly from the distribution in small-cap funds,” the firm said.
Public equity funds are defined by Phenix Capital as investment vehicles in which investors each have a pro-rata claim on the income and value of the fund, which invests in publicly traded equity securities. The consultancy defines impact investing as investing with the dual mandate of financial return and positive societal or environmental impacts, and says the Impact Database includes funds that create “solutions for global social and environmental issues, whilst prioritising financial returns”.