PitchBook’s latest impact investment related analyst note reviews the limited partners that commit to impact funds and their specific considerations as well as examines their recent activity.
Highlights include:
- Sources of capital for impact funds are a blend of for-profit and not-for-profit limited partners, including development finance institutions (DFIs), foundations, high-net-worth individuals (HNWIs) and family offices, and pensions and insurance companies.
- Because of their long-term financial positions and social/environmental development goals, development finance institutions (DFIs) are uniquely positioned to commit capital to impact funds. DFIs are amongst the greatest contributors of “impact capital” and often provide catalytic funding to first-time impact fund managers. However, impact funds must engage a greater base of limited partners (LPs) and break out from dependency on DFIs if they hope to achieve long-term success.
- Foundations have become increasingly active in the impact investing space in the last five years as they have leveraged mission- and program-related investments (MRIs and PRIs) to commit capital to impact funds that are within their philanthropic mandates. MRIs and PRIs are an efficient way for foundations to leverage more of their financial resources to further their programmatic goals.
- Pension funds and insurance companies constitute the institutional segment of for-profit LPs that, due to fiduciary duties, exclusively target market-rate impact fund investments. While these institutional investors have been hesitant to commit to impact funds because of the perceived risks, we expect to see greater participation as impact investing becomes more mainstream.