Impact Investment Group launches A$70m alternatives FoF vehicle

The Impact Alternatives Fund will invest up to 30% of its capital in renewables across both IIG and externally-managed funds.

Australian fund manager Impact Investment Group has launched fundraising for a new fund of funds vehicle, the Impact Alternatives Fund, which will invest across its own products and those of other managers.

IIG is seeking to raise an initial A$70 million ($51 million; €43 million) for the open-ended fund, with a first close of around A$25 million targeted within six months.

The fund has a total return target of 6-10 percent per year, with an annual yield target of 3-5 percent.

Its capital will be split roughly 50-50 between IIG’s own products and externally-managed vehicles, head of product and strategy Jeremy Burke told Agri Investor, targeting an allocation to the IIG Solar Asset Fund. It is not targeting exposure to two other IIG vehicles, the IIG Solar Income Fund and the WA Impact Fund, IIG said.

The IIG Solar Asset Fund held a final close in July 2019 after raising approximately A$80 million, Burke confirmed to Infrastructure Investor, with the capital used to support the construction of three solar farms. The IIG Solar Income Fund hit a final close of A$100 million in 2018.

Its most recent vehicle was the WA Impact Fund, launched in 2019 with a A$20 million cornerstone commitment from WA Super, which marked IIG’s first foray into agriculture. The firm is partnering with Tiverton Agriculture to invest funds from that closed-end vehicle alongside opportunities identified by Tiverton and its Agriculture Impact Fund. Burke said IIG was “approaching first close” on that fund and had developed a “good pipeline”.

Burke said the new Impact Alternatives Fund will target advised clients and high-net-worth individuals, as well as foundations and other institutions.

“The target market is those who use a standard asset allocation model and want to deploy more into alternatives,” he said.

“Over the last few years, we’ve seen an increased demand for investing in this space. We think there’s been more demand for impact investing option that can fit into mainstream portfolios – we see that interest coming from institutions, foundations and financial advisors that use those traditional asset allocation models.

“Investors want impact and investors want alternatives, so we’ve launched this to raise a pool of capital that can invest across a diversified set of strategies. We’ve had feedback that investors want diversification [in this area], but they can’t write cheques across six different strategies.”

The fund’s mandate will see capital invested across renewable energy (30 percent), impact private equity and venture capital (20 percent), impact private debt (40 percent), social impact bonds and payment by results (20 percent), environmental assets (20 percent) and regenerative farming (30 percent).

This allocation split – the percentages indicate maximum allocations – has been set in response to investor feedback, Burke said.

“Within a diversified portfolio, the ability to have the combination of real assets on the regen ag side, as well as environmental assets, is really appealing for investors. There are huge opportunities for both social and environmental impact in those sectors,” he said.

“We know that investors haven’t moved into those areas to the level of demand that we had expected, so we think that growing those areas and getting a pool of capital committed to those areas, while diversified across other areas, is really important.”

Burke said IIG had received feedback that investors using standard asset allocation models were struggling to get access to alternative assets when trying to build a diversified portfolio, finding that assets were either more highly correlated than they appeared to be or were just not available.

On the impact of coronavirus on IIG’s solar assets, Burke said: “There has certainly been a short-term reduction in electricity prices, and we’ve seen infrastructure assets more broadly coming off [high valuations] in the last few months – but we know that well-constructed solar assets have the potential for strong diversification and sit well within a diversified alternatives fund.”

This article was amended on 22/9/20 to clarify details around the fund’s target asset allocations.