Institutional investors say the ongoing lack of liquidity is a major obstacle to their ability to allocate capital to impact investing fund managers.
Nearly all respondents in Tideline’s new survey of over 40 impact-focused limited partners, representing $19 trillion in assets under management, cited lack of liquidity as a critical obstacle. With exits scarce and limited distributions of paid-in capital, or DPI, two in five respondents said the development of a more robust impact secondaries market is essential for attracting institutional capital.
Tideline’s study, with the Institutional Limited Partners Association and Campbell Lutyens, assessed the “The State of Market Institutionalization” of impact investing funds. Survey respondents included asset owners such as AllianzGI, Temasek, UBS Global Wealth Management, and APG Asset Management.
“By addressing barriers such as limited liquidity head-on, the industry can unlock greater institutional capital and move closer to delivering the scale, performance, and impact outcomes investors expect,” said Paula Langton of Campbell Lutyens, a London-based private capital advisor and placement agent. “We see significant potential for coordinated action to accelerate this next phase of market development.”
Tim Macready of Brightlight, an Australia-based wealth manager, told Tideline that improved liquidity will be the best indicator of an impact investing market that is as accessible and efficient as traditional investing: “The availability and frequency of the ability to trade impact assets between different parties without it taking months of time and weeks of legal work.”
Scale limitations
The investment policies of many institutional LPs effectively exclude smaller funds. More than a quarter of impact funds are headed by first-time managers. When institutions are able to commit, smaller ticket sizes require LPs to take on more risk and devote more resources to diligence. The lack of established track records has made it hard for LPs to comprehensively evaluate these newer managers.
“Many LPs are unable to deploy capital at their preferred scale, particularly outside of climate-focused strategies,” the report states.
Research participants rated the current state of data and market infrastructure at just 2.7 out of 5, with approximately 90% citing gaps in financial performance data as a major challenge.
“We don’t yet have enough vintages to show how they are differentiated, investable, and have impact that is consistent,” said Matt Christensen of Allianz Global Investor, the investment arm of the German insurance giant. “You still have to spend a fair amount of time explaining examples of exits as well as what is the actual impact outcome. It may have gotten better than it was 10 years ago, but there is still a ways to go.” he adds.
Allianz Global Investors, which manages $610 billion in assets, launched their first impact private credit strategy in 2024. The firm manages the $1.1 billion SDG Loan Fund, a blended vehicle aimed at supporting job growth, inclusion, and climate solutions in Latin America, Asia, Africa and Eastern Europe.
Operationalizing impact
Respondents were aligned on the definition of impact investing, per the Global Impact Investing Network: Investments made with the intention to generate positive, measurable social or environmental impact alongside a financial return. After that, confusion reigned.
“I’ll be frank and say that when I see papers in this space, they are often quite conceptual and theoretical,” said AllianzGI’s Diane Ma. “We would benefit from more practitioner-led approaches to ensure we are able to operationalize these ideas.”
LPs said that it’s difficult to interpret and compare the available data and asked for greater consensus around core metrics and benchmarks. Roughly 40% of respondents cited a lack of standardization in frameworks and measurement as a challenge.
ILPA’s Matt Schey said the report provides guideposts for fund managers seeking to meet the needs of LPs looking to deploy capital at their preferred scale.
“Institutional investors are accountability-driven fiduciaries that prioritize scale, diversification, liquidity, evidence of risk-adjusted returns, and alignment with existing investment processes,” Schey said, “in impact investing as much as any market.”
