SENNA

Are Secondaries the Answer for Impact Fundraisers?

Private equity firms focused on impact investing may finally have a new avenue to consider as they look to raise capital - the secondaries market.

According to sources familiar with the matter, conditions in the private markets impact investing space could be ripe for increased secondaries activity. Impact-focused funds have historically faced challenges in raising capital, with investors often preferring more traditional private equity strategies. However, the growth of the secondaries market in recent years may provide a solution.

"The secondaries market has matured to the point where it can now accommodate a wider range of fund strategies, including impact investing," said a managing director at a leading global secondaries firm. "Investors are increasingly open to acquiring stakes in these types of funds on the secondary market."

Data from Preqin shows that capital raised for impact funds has grown steadily in recent years, reaching over $50 billion in 2021. However, fundraising has remained challenging, with many impact managers struggling to attract sufficient commitments from institutional investors.

The secondaries market, which allows investors to buy and sell fund stakes, could provide an important alternative channel for impact managers looking to raise capital. Buyers on the secondaries market may be more willing to take a chance on impact strategies than traditional limited partners.

"There's a growing recognition that impact investing can deliver attractive financial returns in addition to positive social and environmental outcomes," said the managing director. "Savvy secondaries investors are starting to see the value in these strategies."

One potential hurdle is that impact funds often have longer investment horizons and less liquid portfolios than traditional private equity funds. This can make them less attractive to secondaries buyers who typically seek more near-term liquidity.

However, sources say that specialized secondaries firms with expertise in illiquid strategies are increasingly active in the impact space. These firms may be willing to underwrite longer hold periods and work closely with impact fund managers to maximize value.

Overall, the growth of the secondaries market appears to be a promising development for the impact investing community. As traditional fundraising channels remain challenging, savvy impact managers may be able to leverage the secondaries market to access new sources of capital and drive their important work forward.