For some of the world’s investors and largest asset managers, owning at least part of an impact fund manager’s business is becoming as common as fleece vests.
For these managers, simply being limited investors in the impact funds is not enough. They want to own at least a stake in the impact funds’ general partnership itself. To get closer to the business of fund management, they are buying “GP stakes.”
Schroders owns most of BlueOrchard, a microfinance-focused impact fund manager. M&G controls a majority stake in the impact manager ResponsAbility. Temasek took a minority stake in LeapFrog Investments, an emerging markets-focused private equity impact fund, as part of a broader investment agreement.
Such GP stakes represent a growing trend. Last year, General Atlantic acquired Actis, an infrastructure impact manager that spun out of UK development finance institution CDC (now known as British International Investments).
“Together, we are uniquely positioned to forge deeper relationships with our investors and unlock opportunities that lie at the intersection of our core investment themes – including the energy transition, the digital economy, and the shift in economic growth to developing economies,” General Atlantic’s Bill Ford said at the time.
“The whole is greater than the sum of its parts,” added Actis’ Torbjorn Caesar.
In the broader private-equity market, more than a dozen funds specialize in GP stakes as a diversified and growth strategy of its own. That trend helped make 2024 a banner year for such transactions. Already this year, a Goldman Sachs GP stakes veteran, Christian von Schimmelmann, has spun out PACT Capital to acquire GP stakes and “provide capital and strategic support to middle-market alternative asset managers.” Also in January, New York-based Bonaccord Capital Partners closed on a $1.6 billion GP stakes fund, its second.
For asset managers and their wealthy clients, owning a stake in a specialized impact investing fund manager can be a shortcut to impact investing opportunities, including co-investments with those managers.
“They decided that they want to have a conditional offering for their investors in impact,” BlueOrchard’s Maria Theresa Zappia said of Schroders 2019 acquisition. “Instead of creating this internally, they decided to acquire a leading impact investor.”
“They took the expertise and amplified all the tools and the processes for impact into a much larger offering across private assets and listed assets,” Zappia told ImpactAlpha.
Emerging managers
Emerging and independent GPs often need capital investment to grow their own operations — just like any other company.
Selling a stake in their own fund management business can help small and midcap impact fund managers overcome a daunting set of challenges. Balancing financial returns with measurable social and environmental outcomes can be a labor- and resource-intensive business. Fundraising is particularly difficult within the still-young impact investing industry.
Attracting a deep-pocketed backer can provide immediate liquidity, enabling firms to reinvest in their business, expand their teams and access new markets and strategies.
That makes the GP stakes model a good fit for asset managers seeking to seed emerging impact funds with novel investment theses or diverse founders or both. Some asset managers take GP stakes as part of their strategies to support multiple impact-focused GPs.
Capricorn Investment Group, the asset manager founded by former eBay president Jeff Skoll, launched the Sustainable Investment Fund, a strategy to provide early stage growth capital for impact-focused fund managers.
Capricorn’s Sustainable Investors Fund has helped seed more than a dozen impact fund managers that operate independently, including real assets investor Vision Ridge Partners and Martis Capital, formerly Capricorn Healthcare.
“Launching new investment funds—especially impact funds—is not easy. By making early-stage investments in these firms, Capricorn acts as an anchor investor, which can help accelerate the firms’ progress,” Capricorn’s Mandira Reddy told Bridgespan Social Impact. “By taking an active approach and bringing our full skillset to the table… we are able to help these fund managers scale up their investment strategies in many ways.”
In 2023, private equity giant TPG launched NEXT, an impact strategy to invest in fund managers founded by diverse, minority and underrepresented investors. While these GPs do not need to manage impact funds, TPG classifies its NEXT strategy as an impact strategy.
TPG Next received a $500 million anchor commitment from the California Public Employees Retirement System; CalPERS also committed $500 million to GCM Grosvenor’s Elevate strategy, which makes catalytic seed investments in small, emerging, and diverse private equity firm founders and closed earlier this month on $800 million.
In July, TPG Next helped launch Caro Investors, to deploy middle-market private debt for commercial real estate, including multifamily, industrial and investment-grade retail. TPG said Next “will serve as a significant anchor investor and strategic partner” to Caro. Last month, TPG Next backed Demopolis Capital Partners, founded by Timothy Greenfield, a buyout firm specializing in business software companies. TPG Next has a pipeline of 400 investment firms under consideration, according to its website.
“We are looking to back investor entrepreneurs who have developed a differentiated strategy and have the entrepreneurial drive required to build an innovative investment firm,” TPG Next’s Pamela Pavkov said in statement.
Alignment and dilution
For impact fund managers struggling to raise capital in a tough environment, the sale of a portion of their own operating businesses presents both opportunities and risks.
Minority stake investments also often include a commitment from the buyer to commit to the GP’s future funds. In the LeapFrog deal, Temasek committed a total of $500 million, including commitments to future LeapFrog funds along with a minority equity investment in the firm itself. Temasek also took a non-executive seat on LeapFrog’s board and was one of the LPs in LeapFrog’s fourth fund.
But there can be drawbacks for private equity firm founders accepting external investment. If the holders of significant GP stakes are not mission-aligned with the fund managers themselves, conflicts could undermine the managers’ ability to execute on their impact investment theses.
A GP stakes investor could access not only the general partnership’s fees, but also its carried interest, or profits from the fund’s investments. That dilution may reduce the capital that can be reinvested in the firm and future funds, and can sometimes present an obstacle for future limited partners, who may be concerned about the incentives and alignment of the fund’s active managers.
Partnerships with big private-equity funds “provide emerging GPs access to their partner’s brand, network, relationships, and expertise,” TPG Next explains on its website.
“Conversely, it’s an opportunity for a partner to invest in innovative investor entrepreneurs and shape their stories from the beginning.”
