The typical 10-year, “two and 20” fund model has been declared obsolete many times, especially among impact investors, for whom the standard private equity or venture capital fund structure is often particularly ill-suited.
And yet, it persists.
Now, market conditions and more clear-eyed assessments of value-creation strategies are combining to support another wave of fit-for-purpose structures.
In affordable housing, developers like Avanath and Vistria are raising permanent capital vehicles to hold their portfolios of stable, affordable, mixed income properties for the long-term. “We just like to operate and own rent-restricted apartments,” Avanath’s Daryl Carter told ImpactAlpha.
In private equity, as average hold times for portfolio companies increase, some buyout funds are expanding their toolkits from short-terms layoffs and cost-cutting to long term value-creation. The longer hold times effectively make private equity firms more like holding companies that can avoid the need to exit from portfolio companies just when operations are humming.
“The logical next step is increased focus on the broader elements that make people the most important asset of any company— including fair wages, quality healthcare, and strong benefits,” said Aren LeeKong of Nine Dean, which is structured as a holding company specifically to pursue a ”quality jobs” strategy (disclosure: NineDean was launched last year with an anchor commitment from the Ford Foundation, which also is an investor in ImpactAlpha).
And the dearth of exits has caused some managers to stretch the bounds of the standard closed-end fund, with the growth of extensions, secondary funds, “continuation” vehicles and other creativenexit strategies. To survive the fundraising drought, many managers now offer their limited partners, or LPs, co-investment rights and GP, or general partnership, stakes.
The Innovative Finance Initiative’s Aunnie Patton Power calls it Impact Investing 3.0. The first generation proved mission and returns were not mutually exclusive. The second built the market infrastructure, creating more standardized ways to measure and manage impact. Today’s impact managers have the resources and the track record to redesign fund structures themselves.
“What’s changed is not just volatility, but the breakdown of assumptions,” said RCPK’s Chintan Panchal, an impact lawyer who has helped structure funds across the ecosystem. “Traditional fund structures assume stable exit pathways, clear pricing of risk, and aligned investor expectations. In many impact sectors today, those assumptions don’t hold.”
Outcomes over instruments
A growing number of managers are starting from scratch and building a playbook for impact fund design.
Innpactia, a Bogota-based platform that designs and co-manages impact funds across Latin America, was built around the frustration founder Juan Carlos Lozano experienced while working in Colombia’s public sector, watching projects fall short not for lack of capital, but because of how they were structured.
For Lozano, the fix begins with building a theory of change into the fund itself and aligning everything to that. Lozano is helping to structure funds that tackle challenges ranging from livelihoods for a wave of migrants to shoring up democracy.
“We need impact investing funds to start differentiating radically from understanding themselves as venture funds,” Lozano tells ImpactAlpha. “How do we start thinking more about a holistic view of what we want to do with our portfolios?”
Innpactia helped design Alborada Ventures, a $2 million pilot co-managed with Radical Flexibility Fund that backs migrant-owned businesses and civil society organizations working on migration integration across Colombia and Mexico.
The fund is designed to reach migrant-owned businesses and organizations that traditional impact investors overlook, deploying nearly half its capital as loans, with the remainder split across recoverable grants, outright grants and technical assistance.
Alborada’s first call drew 108 applicants across Bogota, Barranquilla and Valle del Cauca, spanning fintech, job training, recycling and healthcare. Most had never applied to an impact fund before. The Dunn Family Charitable Foundation, led by Jay Dunn of DF Impact, provided initial startup funding and has pledged additional capital once Alborada reaches a fundraising milestone.
“We’ve been copying and pasting private market models and implementing them here the best we can,” Lozano adds. “But then you start seeing impact-linked loans, revenue-based financing — things that are starting to take a different direction. And that is what I feel is the most exciting.”
Innpatia is also putting together Fondo para la Democracia, a proposed $10 million fund with Bogotá-based impact investor Corporación Inversor. The fund integrates a theory of change for an even more complex challenge: strengthening Colombia’s democratic institutions. The country scores 37 out of 100 on Transparency International’s Corruption Perceptions Index, ranking Colombia 99th out of 182 countries.
The pilot fund will invest in three areas: electoral integrity, independent media sustainability and civic agency, each tied to national indicators tracked over four to six years.
Rather than fixed repayment schedules, the fund will pay organizations based on results, including electoral integrity, media independence and civic participation.
Climate considerations
The need for new thinking is especially pronounced in climate investing, which has been buffeted by tariffs and political headwinds. Onramp Capital, MOTIV Partners, and Great Circle Capital Advisors interviewed more than 150 investors, executives, policymakers, and philanthropic leaders about their climate investing plans and outlook.
“Deploying the same climate capital strategies used from 2015-2025 will not work in the coming decade,” they conclude in a new report.
Among the their findings: the default 10-year fund model works for just a small subset of climate solutions, which often have longer time horizons to commercial success. Participants pointed to the need for new models, funded at scale, that rethink traditional assumptions about equity, debt, risk, duration, and IRR to appeal to institutional investors.
Climate investors have also been taking aim at the so-called Valley of Death, where startups must transition from research and pilot projects to building out capital-intensive commercial plants. Investment platforms that invest across lifecycles can help scale climate startups on their journey, the researchers say.
Elemental Impact’s Development-SAFE, a twist on the “simple agreement for equity” widely used in Silicon Valley created with law firm Wilson Sonsini, addresses the specific needs of startups developing their first pilot plants or commercial facilities.
Thesis over geography
Pension funds, which generally have to write big checks, have a hard time backing smaller funds, including many emerging market funds, without breaching concentration limits or incurring diligence costs that are too high relative to the check size.
“If you sit in isolation with a small $40 million fund in Latin America, it’s going to be harder to understand what you’re really moving,” says Luis Javier Castro, who previously co-founded Mesoamerica, a private equity firm that developed more than 1.3 gigawatts of energy infrastructure across the region with institutional investors including Ontario Teachers’ Pension Plan.
With Abundance Circle, a new evergreen global fund of funds structured as a donor-advised fund and administered by ImpactAssets, Castro is using uses philanthropic capital to take first-loss positions in a portfolio of funds organized around thematic clusters in sectors such as deep tech, the energy transition and community-based economic development.
The fund received an anchor investment by Peter Buffet’s Novo foundation, and is seeking to raise $100 million in philanthropic catalytic capital in its first year. The goal is to scale to $1 billion within five years and $5 billion over the next decade.
“By activating this ecosystem of foundations, funds, and companies, we expect to increase the probability of success of the whole system,” Castro says. “It becomes evident that you have to move from a siloed mentality to systems thinking.”
Corporate partnerships
Many impact funds are exploring new ways to bring corporations in as investors, strategic partners, or both.
Innogen Capital, a Central American focused impact fund, has brought large regional companies into its LP mix, including Grupo Agrisal and Grupo Steiner, with the aim of turning them into strategic partners as portfolio companies expand beyond Central America.
Each corporate LP holds voting rights on deals within its respective industry on the fund’s investment committee. The structure is also designed to create clearer paths to exit, including potential acquisitions.
CO_ Capital, a Mexico-based impact investor, manages funds, supports accelerators, and works to mobilize family offices and corporations into impact investing.
“One of the ecosystem’s major flaws is that we who are inside it tend to be too radical about the work that needs to be done by major corporations,” Felipe Fernández of CO_ Capital told ImpactAlpha.
“We push them away as if they’re the enemy that has to disappear. In reality, they’re the organizations we need to leverage and catalyze. Many impact companies avoid talking to big corporations because they see them as evildoers, but we need to integrate them into this way of thinking,” he added.
Impact-linked compensation
Most fund structures pay managers on financial performance through the standard 20% for carried interest, or “carry” in two-and-20 (the 2% represents annual fees charged on assets under management). Impact outcomes rarely enter the equation. Roots of Impact has spent a decade trying to change that.
The German advisory firm has put its own spin on SAFEs, short for simple agreement for equity, which are a staple of Silicon Valley that allow early-stage companies to raise equity without an immediate valuation. Roots of Impact’s “simple agreement for future impact,” or SAFI, applies that logic to impact: entrepreneurs raise early funding tied to their impact objectives without having to lock in specific targets upfront, buying time to stress-test their models before committing to metrics.
The Roots team tested the new model in their own fundraise last year, backed by Delta Fund, the European Social Innovation and Impact Fund, BMH and the Swiss Agency for Development and Cooperation. Roots of Impact also invented the SIINC, or social impact incentives, which offer bonus payments to companies as they achieve specified impact milestones.
“More managers are coming to market with strategies that don’t fit neatly into traditional fund models,” says Panchal of RCPK. “And more asset owners, particularly family offices and strategic corporates, are open to structures that prioritize access, outcomes, or thematic exposure alongside returns.”
“The conversations we’re a part of have been shifting from, ‘Can we do something different?’ to, ‘How do we design this to actually work?’” he says. “We’re now designing for actual results as opposed to just reacting to challenges.”
