GP Stakes in Impact Investing
THE STRATEGIC ROLE OF GP STAKES IN DEVELOPING THE IMPACT INVESTING ECOSYSTEM
Overview
The world is facing major challenges including worsening climate change, inadequate access to healthcare, housing and financial resources, depleting natural resources, and other critical issues. We believe that these challenges represent one of the largest investment opportunities of our time. As trillions of dollars flow toward addressing these issues, asset management firms that deploy this capital stand to accrue significant economic value.
At its core, the financial system exists to efficiently allocate capital to areas of need and opportunity. However, not all societal challenges can be solved through market-rate capital alone. Where market solutions are viable, we believe the financial markets must innovate to address these challenges effectively. As Nobel laureate Robert
Shiller argues in Finance and the Good Society, finance is about creating the financial structures that help society achieve its goals. Through new structures and instruments, finance should enable society to manage and share risks more effectively. For challenges where market rate capital can be a solution, demonstrating that strong financial returns can coexist with positive impact will attract the most capital to this space.
Impact investing exemplifies this potential by developing innovative vehicles specifically designed to address pressing social and environmental challenges. Yet while absolute impact AUM has grown over the past decade, it represented just 2% of the $1 trillion in 2023 vintage private funds raised—indicating significant room for growth.
Total AUM for Universe of Private Funds vs. Private Impact Funds
$2,000,000 $1,800,000
Source: Preqin, Capricorn Investment Group Note:
GP Stakes Landscape
In our years of supporting emerging and growing asset management firms, we have encountered minimal competition in pursuing these deals. While several GP stakes investors operate in the market, they typically focus on either emerging or larger firms and lack experience in market-rate
impact investing and the specialized expertise needed to support impact-focused managers. This creates an attractive opportunity for investors like Capricorn looking to participate in this growing market segment.
Growth/Lower Middle Market
> Impact-oriented, flexible LP/GP capital
> Provide LP anchor capital for new managers
> Invest in both new launches and growing asset management firms
Established/ Mega Funds
> Fund GP succession planning for large cap managers
The above has been prepared for illustrative purposes only. It shows a subset of our peers in the GP stakes market and does not represent the full breadth of investment opportunities available
GP Stakes: Building Blocks of Return Potential
We provide minority growth equity, GP commitment financing, and selective LP investments to unlock multiple streams of cash flow throughout the holding period. In doing so, we benefit from immediate, stable cash yields through participation in management fee income, which provides both current returns and downside protection. Participation in performance fees provides upside potential tied to the success of the underlying funds. We also capture value from appreciation in the asset management businesses themselves as these firms expand AUM. This structure creates
an alignment of interests for us and the investee asset management firms. As managers leverage growth capital and GP financing to scale their platforms, both parties benefit from increased management fees, carried interest, and increase in business value. This creates a differentiated return profile that combines steady income, performance fee upside, and franchise value appreciation that is difficult to replicate in other investment approaches.
Impact Sector Market Structure and Opportunity
The current structure of the impact investing segment makes it well suited for GP stakes investors. Most capital is concentrated among a handful of large managers while hundreds of specialist managers are seeking to scale. This presents a clear opportunity to support the next generation of institutional scale asset management firms. Asset managers who build specialized expertise and infrastructure early have the potential to capture significant value. By positioning themselves as trusted partners capable of deploying capital toward long-term societal needs, these first movers can create lasting competitive advantages in an expanding market.
The climate sector is a good example. Even though climate change has been on the radar for decades, we only started seeing significant increases in investment when specialized investment managers demonstrated that they could effectively deploy capital at scale while generating market-rate returns. Today, climate focused strategies dominate the impact investing universe, showing how specialized managers can turn a nascent sector into an institutional focus area.
Understanding the current market structure provides insights into where similar opportunities exist in climate and other impact sectors.
Number of Managers & Percentage of Total Impact Funds Raised by AUM Category
Number of Managers & Average AUM by AUM Category
The current concentration of capital and market structure creates specific challenges and opportunities:
> Large, traditional firms launching impact products often lack specialized expertise
> Some firms “impact-wash” existing strategies to capture growing demand
> Most focus on easily scalable sectors while neglecting more complex opportunities
This approach fails to address the core challenge: Building and scaling specialized, impact-focused asset management strategies that can effectively deploy capital to tackle the world’s most urgent needs.
Meanwhile, institutional investors are eager to engage in impact investing but struggle to find enough qualified managers at the necessary scale. Many specialized managers with strong track records face obstacles in scaling to levels that attract institutional capital. This creates a “chicken and egg” problem for both investors and managers, presenting an opportunity for GP stakes investors to help bridge the gap.
Capricorn’s Approach to Scaling Impact-Native Asset Management Firms
At Capricorn, we have a long history of scaling impact-aligned asset management firms, and we have witnessed firsthand the power of strong institutional backing to help these managers grow. Our approach to scaling these firms has evolved through two complementary phases— our early years of seeding impact-native asset managers and more recently, a dedicated GP
stakes strategy called the Sustainable Investors Fund (SIF). Both phases share a common theory of change: specialized impact managers with the right support can scale their operations while maintaining impact integrity and generating competitive returns.
Scaling Through SIF
After years of successfully seeding asset managers and proving that our theory of change works, we launched the Sustainable Investors Fund (SIF) in 2019 to systematically scale emerging and growth stage impact aligned asset management firms. In the past 5 years, our investee firms have grown their AUM by 6.7x, reaching $20.8 billion by Q2 2024.
SIF I Portfolio Managers AUM Growth
Our Value-Add Services
We provide three forms of strategic capital to address the full spectrum of challenges that growing impact managers face as they scale.
In some instances, to support new fund launches or assist in warehousing deals prior to a manager’s first close
Beyond capital, we provide hands-on support, working alongside our investees on everything from strategy and fundraising to operations and sustainability integration. We invest at the management company level because we seek a fully aligned partnership with the leadership teams we believe in.
Across these focus areas, we pursue three core impact objectives. These objectives guide our
Accelerate Innovation
> Fund breakthrough solutions
> Enable new business models
> Demonstrate vitality of innovative investment models
investment selection to help ensure we are driving tangible, measurable outcomes:
Scale Effective Solutions
> Enable cost reduction
> Commercialize proven approaches
> Build physical and market infrastructure
Of these areas, climate-related asset management firms have the biggest representation in the portfolio, reflecting both the scale of climate
> Increase availability of capital
> Improve services and affordability
> Remove barriers to adoption Broaden Access
change and the growing opportunity set for institutional investors.
Value Creation & Benefits
Our GP stakes approach creates multiple layers of value for both investee asset management firms and SIF.
Benefits for Investee Asset Management Firms
ACCESS
Strategic capital and value-added services enable asset managers to scale their investments and operations
Benefits for SIF
As these managers demonstrate investment success, they attract additional institutional capital, allowing them to deploy larger amounts toward high-impact solutions
GROWTH
These results drive further capital flows, creating a flywheel effect
> GP stakes strategy unlocks differentiated returns throughout the holding period
> Steady yields and participation in management fee income provide current cash flows and downside protection
> Performance fee participation offers significant upside potential
> Growing franchise value through appreciation in the value of the asset management business
> Access to impact investing growth opportunities
> Portfolio diversification across sectors, strategies and vintages
> Each $1 of GP stakes capital has the potential to help unlock >10x in institutional capital for impact
> Ability to influence portfolio companies’ impact strategies
> Acceleration of institutional capital flows toward sustainable development Economic
Our Path Forward
The GP stakes market has grown considerably, but its potential as a tool to scale impactaligned investment management firms remains largely untapped.
Our historical investments underscore the effectiveness of this approach. By providing early and growth-stage capital to impact-native firms, we have demonstrated the multiplier effect that tailored support can unlock. At
the same time, we have demonstrated that attractive returns can be achieved by catalyzing impact aligned asset managers.
We remain committed to this approach through our Sustainable Investors Fund platform.
For more information, please refer to our website, www.capricornllc.com,or reach out to investorrelations@capricornllc.com
Disclosures
The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell, or a solicitation of an offer to buy or sell, any private fund interests or to participate in any trading strategy. Any offer of interests may only be made to qualified offerees pursuant to a definitive Private Placement Memorandum or Confidential Offering Memorandum (“Offering Document”) prepared by or on behalf of a Capricorn fund, which contains material information not contained herein and which supersedes information herein in its entirety. Any decision to invest in private fund interests should be made after reviewing such Offering Document, conducting such investigations as the investor deems necessary and consulting the investor’s own investment, legal, accounting and tax advisers in order to make an independent determination of the suitability and consequences of an investment in the securities.
The information provided herein includes projections or targeted performance results. Past, projected or targeted performance is not indicative of future results, and there can be no assurance that the fund will achieve comparable results or that it will be able to implement its strategy or achieve its investment objectives or targeted returns.
The information provided herein constitutes “forward-looking statements”. Due to various risks and uncertainties, including those described above, actual events or results or the actual performance of the fund will differ materially from those reflected or contemplated herein. No representation or warranty is made as to future performance or such forward-looking statements. Capricorn expressly disclaims any responsibility for any reliance you may place on the information provided herein.
Client’s return will be reduced by the advisory fees and any other expenses (including carry if applicable) it may incur in the management of its investment advisory account. Capricorn’s investment advisory fees are described in Part II of the adviser’s Form ADV. It is important to note that investment advisory fees, particularly over a period of years, would reduce the total value of a client’s portfolio.
Investment themes and selected investments provided herein are provided for illustrative purposes only. Not all transactions entered into by Capricorn will be profitable. These investments are meant to show a portion of the current Capricorn portfolio and is not intended to be representative of current or future portfolio of investments.
The information contained herein reflects Capricorn’s current views and opinions with respect to, among other things, future events and financial performance. Capricorn generally identifies forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “ will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words. Any forward-looking statements contained herein are based upon historical information and current plans, estimates and expectations. The inclusion of this or any other forward-looking information should not be regarded as a representation by Capricorn or any other person that the future plans, estimates or expectations contemplated by Capricorn will be achieved.
Any impact goals are aspirational and not guarantees or promises that all such goals will be met. There is no guarantee that any investment or company will have or create a positive impact or that any impact considerations by Capricorn will ultimately align with the goals, beliefs or values of Capricorn or any individual investor or other asset managers or market trends. Any measures implemented in respect of such impact goals, targets, commitments, incentives, initiatives or outcomes may not be implemented or immediately applicable to the investments of any funds managed by Capricorn and any implementation can be overridden or ignored at the sole discretion of Capricorn.
Impact goals may be subject to change.