Permanent capital vehicles could be the way forward for general partners launching social impact funds.
Bridges Fund Management is a pioneer of the strategy, having raised £23 million ($31 million; €26 million) for its eponymous Evergreen vehicle in December 2016. The London-based firm held a second close on £50 million last week, with up to 90 percent of the new capital originating from existing LPs, according to a statement.
Big Society Capital – an independent social investment institution – was a cornerstone LP, which invested alongside the Greater Manchester and Merseyside Pension Funds, as well as the eaga Trust, which promotes employee ownership. Limited partners receive yield via dividends and loan interest, according to a Bridges statement from 2016.
Bridges has completed three investments from Evergreen, which seeks public sector spin-outs, social sector organisations and profit-with-a-purpose companies. Its portfolio includes residential care provider New Reflexions and elderly care specialist Shaw Healthcare.
The aim of the vehicle is to systemically raise and invest an increasing amount of capital to build a Berkshire Hathaway-style holding company that operates over longer periods. The model would allow the fund to provide ongoing financial and operational support without pressure to exit within a certain timeframe. Its portfolio companies should benefit from the ability to tackle social issues at scale without the uncertainty of new ownership or a lack of funding – and therefore may find the GP a more attractive partner than those with a five- to seven-year investment horizon.
Social impact and healthcare businesses are also often subject to regulation. Navigating and adapting to these restrictions could require more time than a regular fund can offer.
Beyond impact investing, evergreen and long-hold vehicles are growing in popularity across the private equity spectrum. BlackRock Alternative Investors is reportedly raising a $10 billion perpetual capital vehicle targeting minority stakes in family-owned business and corporate spin-outs. Blackstone plans to further expand permanent capital throughout its business lines, Tony James, president and chief operating officer at the firm, said in October.
KKR amassed $8.5 billion for its Core Investment strategy, which will have an expected hold period of 15 years or more and not include recycling provisions. Apollo Global Management also plans to launch a long-term equity and credit vehicle, it announced in December.