Asia private equity 2025 preview: Impact investing
Investment in impact strategies globally has held steady despite a difficult macro environment, with the industry topping USD 1.57trn in assets under management in 2024, according to the Global Impact Investing Network (GIIN). This represents a 21% compound annual growth rate since 2019.
Standout activity includes EQT’s Future fund, a climate, nature, health and wellbeing-focused private equity vehicle that closed on USD 3.3bn in March, and Infranity, a sustainable infrastructure manager, raising EUR 2bn (USD 2.1bn) across its two flagship impact debt funds.
“The market has definitely changed,” said Shivani Sahai, head of impact and ESG (environmental, social, and governance) at healthcare-focused Quadria Capital.
“Even as a standard practice for managers, demonstrating contribution towards addressing environment and social challenges is becoming an important factor when deciding to collaborate with certain capital allocators. Traditional investors are left with no choice but to start putting in practices and measuring outcomes in a better manner.”
Importantly, the backdrop for the growth includes a proliferation in recent years of international best practice guidelines for the standardization of impact measurement. The latest development on this front is the emergence of specialised standardisation working groups in domains such as healthcare, education, energy, and carbon markets.
“Everybody is looking for more accountability, discipline, and comparability in the way different GPs are working in this area,” Sahai added. “Greater transparency and credibility are something LPs are interested in in terms of encouraging impact investors to take steps to adopt best industry practices.”
Track records emerge
For Fernanda Lima, a partner at LeapFrog Investments, external validation from and affiliation to best practices of groups such as the UN’s Principles for Responsible Investment (PRI) and GIIN can be beneficial for investors looking to really understand the credibility of a GP’s work.
“You don’t necessarily have to convince anyone because you already have the systems and the right framework in place,” she said.
LeapFrog represents a class of global impact investors that have begun to take the industry mainstream. Last month, it closed its fourth flagship fund on target at USD 1bn with more than 50% of the capital coming from Asia, including first-time investors from Japan, Singapore, and China.
There is also ABC Impact, which closed its second fund last year on USD 550m, and Fullerton Fund Management, a decarbonisation specialist that has collected more than USD 200m across three funds. Temasek Holdings is an anchor investor in all three, having committed at least USD 500m to LeapFrog alone.
“The industry is at the point where we have figured out the measurement and management. Now most of us are on Fund II or Fund III,” said Sugandhi Matta, chief impact officer at ABC. “So, we have an opportunity to really look at the data and really glean some valuable insights on how to make these products better, how to reach consumers, and how to amplify certain technologies.”
Niche strategies
As the industry attracts a wider pool of LPs, GPs will pursue increasingly nuanced fundraising processes in terms of finding the right backers for a given fund’s approach to impact.
Wai Chiew Chik, who recently ended an eight-year stint as CEO of Singapore-based healthcare, education, environment and technology investor Heritas Capital, said the firm’s strategy has long been impact-first.
Chik acknowledges that an impact-first strategy will broadly offer 5% to 10% returns, lower than the targeted mid-teens return from a finance-first impact investment approach. But this shouldn’t be a deterrent to LPs determined to make a difference.
“We need to be explicit on the purpose of the fund and mandates and then the return target will be set accordingly,” he said. “Sacrificing returns or not really depends on what you’re doing, how you’re doing it and that you’re aligned with your stakeholders to achieve this risk-reward-impact objective at the same time.”
Segment specialisations will also increasingly play a role in appetite for impact. Areas seen as favoured by LPs include climate, telemedicine, diagnostics, gender, education, and social investing, including supporting the vulnerable and the elderly.
As new generations of high net worth individuals (HNWIs) increasingly embrace these strategies, the specialisation trend could further splinter.
In a report last June, Bank of America Private Bank found that 91% of wealthy Americans are big supporters of philanthropy and that younger generations among them are nearly twice as likely to support causes like homelessness, social justice, and climate change.
The report also found that some 93% of younger HNWIs plan to allocate more to alternatives in the next few years – a potential boon for private equity-driven impact funds.
“The market understanding of impact investing has been enhanced, which is why I like to push the frontier to talk about impact-first investing,” added Chik. “My overall hope is that within the next five to 10 years, all investments are impact investments because people will know it so well and would like to have a purpose with the investing, which will then make it mainstream.”