SENNA

Are Secondaries the Answer for Impact Fundraisers?

Private markets impact investing is a rapidly growing space, but fundraising challenges have plagued many managers. Now, industry participants believe the conditions could be ripe for a surge in secondaries activity to provide a solution.

According to Secondaries Investor, impact funds have struggled to raise capital, with many missing their targets. Investors have been hesitant to commit to the asset class due to concerns about liquidity, track records, and the ability to measure real-world impact.

"There's a lot of capital out there that wants to go into impact, but investors are still grappling with how to underwrite it," said a source familiar with the matter. "Secondaries could provide a way for them to get exposure without the commitment of a blind pool fund."

Indeed, the dynamics in the impact investing space mirror those that drove the growth of the private equity secondaries market over the past decade. Investors seeking more flexibility and liquidity have fueled demand, while fund managers have turned to the secondaries market to provide early liquidity to their LPs.

"The impact space is still relatively young, so there's a lot of uncertainty around performance and the ability to exit investments," noted the source. "Secondaries give LPs a way to manage that risk and allocate capital more tactically."

Several industry participants believe this dynamic is poised to play out in impact investing as well. Leading asset managers are already exploring ways to establish secondaries programs to provide liquidity options for their impact fund investors.

"You're starting to see more interest from the big private equity firms in building out impact investing platforms," the source said. "The ability to offer a secondaries program is seen as a key part of that."

Of course, the impact investing market faces some unique challenges compared to traditional private equity. Measuring and reporting on real-world outcomes remains a major hurdle, which could complicate the pricing and underwriting of impact fund stakes on the secondaries market.

But with billions of dollars flowing into the space and growing pressure on fund managers to deliver tangible results, industry experts believe the conditions are ripe for secondaries to emerge as a solution. Savvy investors may soon have a new avenue to access this increasingly important corner of the private markets.