Signals: LPs are differentiating themselves on how they manage and improve GP impact

Owners and managers of impact capital flipped the pitch at last week’s Latin American Impact Investing Forum. In a role reversal, LPs defended their strategies and priorities to an audience of GPs seeking capital to scale their impact investment strategies.

Investors in private impact funds are increasingly differentiating themselves on what they bring to the table. More specifically, LPs are letting it be known how they can help improve the impact outcomes, and ultimately financial returns, of GPs.

“We are aware that the questions we ask have an effect on the fund managers we invest in,” Jessica Droste Yagan and Priya Parrish of Chicago-based Impact Engine, write in “What is an Impact LP.” Impact LPs, write Yagan and Parrish, “engage in deeper questions about the implications of our choices on our sourcing strategy, investment universe, portfolio construction, portfolio management approach, time horizon, etc.”

That LPs are seeking an impact edge is just one of the LP/GP-focused “short signals” we’re watching this week:

• Private equity outlook. Private equity dealmaking and exits are up. Fundraising is down. And uncertainty reigns amid back-and-forth policies regarding tariffs and other macro issues. The mandate for GPs: “If you can’t offer investors a differentiated value proposition, raising your next fund is going to be a serious challenge,” write the authors of Bain’s Global Private Equity Report. (Bain & Company)
  
• University endowment bump. A growing number of endowments at US colleges and universities are adopting impact investment strategies. Roughly 10% of the endowments at more than 650 US higher education institutions report implementing impact investing strategies – up 21% over last year, according to the latest study from The National Association of College and University Business Officers. (NACUBO)

• Endowment impact benchmark. Fifteen academic and foundation institutions with assets under management ranging from $50 million to over $20 billion have completed a pilot assessment of their impact management practices from Intentional Endowments Network and Bluemark. Participants performed strongly in transparency (83%) and collective action (93%). Room for improvement: shareholder engagement (61%). (Intentional Endowments Network)

• Meeting LP demand for infrastructure impact. Energy transition. Responsible consumption. Clean water. More than 190 investment managers manage 401 infrastructure impact funds in the Phenix Impact Database. Currently 168 are open for investment. Driven by demand for stable, long-term cash flows, pension funds made up more than a quarter of all allocators to infrastructure funds, followed by foundations (12%) and funds of funds (12%). (Phenix Capital)