LP appetite grows for ESG solutions

February 22, 2022

Q What are you currently observing in terms of demand for ESG solutions among the LP community?

Natasha Buckley: Sustainability and impact investing has become a critical element of portfolio construction across asset classes. A lot of LPs come to us as they are doing market research
and thinking about how they will allocate to ESG and sustainable strategies in private markets. We recently conducted a survey of 130 of our LPs, half of whom are based in Europe, and found that 72 percent plan to increase their allocation targets to sustainability and impact investing in the next two years. Within that, three-quarters already include private markets in those allocation plans and a further 19 percent plan to include private markets in those strategies going forward.

LPs are actively looking for solutions as they are under-committed according to the impact investing targets they have set. We are watching the volume of demand and gauging what the supply looks like. LPs are looking to deploy large sums of capital, so they need scalable opportunities and want to work with established managers with diversified, high-performing portfolios.

We asked the LPs that we surveyed whether it was important that their allocation to sustainability strategies was through an impact fund vehicle or whether it could be through a fund that isn’t strictly defined as impact. Only about 25 percent of LPs found an impact fund was decision-critical, while for others it was important, but not vital. That was important to us as we thought about our own strategy for responding to this investor demand, and why we think co-investment is the right solution at this stage.

Read the full interview with Private Equity International here.

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Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).