Private Equity Became Cautious on Impact in 2022

The conflict in Ukraine and inflationary pressures led to private equity companies growing more cautious regarding impact investment strategies in 2022, according to a new report.

Research by European impact investment consultancy Phenix Capital found that 87 new impact funds were launched by private equity managers last year, with total committed capital increasing by almost 2% to €161 billion ($172 billion).

“The private equity market in general in 2022 was a story of two halves,” Phenix’s report stated. “Growth and innovation continued with the 2021 momentum for the first half of the year, but the second half saw private equity firms become more cautious as the global macro impact of the war in Ukraine and rising inflationary pressures restricted access to financing.”

Despite this slowdown, the new launches mean that private equity strategies make up 54% of Phenix’s impact fund database. Venture capital funds account for 59% of all private equity funds covered by Phenix, while those based in North America accounted for 18% of total capital raised.

In terms of Sustainable Development Goals (SDGs) targeted, the most popular by total capital raised was SDG 3, Good Health and Well-being, with €66 billion, followed by SDG 9, Industry Innovation and Infrastructure, with €65 billion.

Phenix said the popularity of SDG 3 was a “legacy of the pandemic”, while food security concerns emanating from the conflict in Ukraine has encouraged significant investment into strategies supporting SDG 2, Zero Hunger. As of the end of last year, this had attracted €47 billion of cumulative flows.

Separately, UK financial services giant Legal & General (L&G) has invested in an emerging markets impact investment startup via its alternative asset platform, L&G Capital.

The new company, ImpactA Global, is led by co-founders Isabella da Costa Mendes and Victoria Miles, formerly of JP Morgan. It aims to drive impact investment into “transformational infrastructure projects”, as well as “unlock critical investment to drive climate transition and reduce inequalities”.