Ravi Rastogi

bfinance, the independent investment consultancy, has announced the appointment of Ravi Rastogi in a newly created senior leadership role: Managing Director and Global Head of Insurance. He will be based in the firm’s London office. The shift underscores the increasing strategic importance of the insurance practice globally, which has represented a key growth driver for the firm in recent years.

An industry veteran, Rastogi brings more than thirty years of experience in financial services, with almost twenty years in the specialist insurance investment field. His previous insurance investment leadership positions include regional roles at Mercer (2015-18) and (Willis) Towers Watson (2010-2015) and EY (2021-2024). In 2018 he founded Ark Advisors, an insurance-investment focused specialist consultancy. Prior to his appointment as Global Head of Insurance at bfinance, he had been working closely with the firm for several months in an advisory capacity.

In this new role, Rastogi will work closely with the senior team and client consultants across all international offices. The appointment will strengthen bfinance’s ability to support insurers in navigating increasingly complex investment, regulatory and sustainability challenges, refining the firm’s strategic offerings in this space and enhancing capabilities.

The appointment reflects the growing importance of the insurance sector to the consultancy: bfinance has over 100 insurer advisory relationships, with almost 90% of these engaging in the last 5 years. As such, the insurance practice represents one of the fastest-growing parts of the business. This shift reflects wider trends such as insurer portfolio diversification, evolving regulatory frameworks and the improving accessibility of certain alternative asset classes.

Client diversification across segment and geographical lines has been a key tenet of bfinance’s long-term strategy as it seeks to maintain resilience and sustainable growth through a period of transformative change in the global institutional investment landscape. The firm’s Wealth Management practice also represents a key strategic growth priority, providing added service capability for the broader integrated insurance and asset management groups.

Ravi Rastogi, Managing Director, Global Head of Insurance at bfinance, said: “bfinance has a long-standing reputation for independent, rigorous advice and for acting as a true extension of its clients’ internal teams. The research pedigree and unique client-centric business model resonate deeply with insurers’ own commitment to delivering investment outcomes for their end clients. Having worked closely with the firm as an advisor, I am delighted to be taking on this role full time. I look forward to working with colleagues and clients globally to help insurers address evolving investment priorities, governance demands, and sustainability objectives.”

Frithjof van Zyp, Senior Director, Australia at bfinance, said: “Ravi’s appointment further reinforces bfinance’s global strategic focus on the insurance sector. This comes at a time when Australian insurers are seeking more specialised investment support. It is a sector we have been active in since 2016, and we continue to see accelerating demand locally. Ravi’s deep sector expertise will enhance our ability to support Australian insurers across complex areas such as multi‑asset portfolio design, alternative asset class implementation, and the integration of sustainability and regulatory considerations.”

David Vafai, Chief Executive Officer at bfinance, said: “Ravi’s appointment reflects both the depth of his expertise and the growing importance of insurance clients within our global business. He brings a rare combination of strategic insight, operational experience, and deep sector knowledge. His leadership will be instrumental as we continue to expand and strengthen our insurance offering worldwide.”

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Frithjof VanZyp

Institutional investors are rotating towards private debt, infrastructure, and diversifying hedge fund strategies as geopolitical and macroeconomic pressures continue to drive selective risk-taking, according to the latest quarterly Manager Intelligence and Market Trends report from independent global investment consultancy, bfinance.

Investor activity

Private markets remained the leading area of institutional mandate activity, representing 50% of manager searches in the 12 months to March 2025—up from 43% the previous year. While private equity remained subdued, demand for private debt and infrastructure remained strong, with the latter rising to 13% of all private markets searches. Semi-liquid vehicles and asset-backed strategies featured prominently, reflecting investor demand for stable income with built-in flexibility.

Equity mandates accounted for 23% of total searches, down from the previous year’s high, but with clear thematic shifts. Global equity rebounded to comprise 56% of equity mandates, while investors increasingly targeted emerging markets, with strong activity in India, Saudi Arabia, and GEM ex-China. Enhanced index and systematic equity strategies also gained traction, as allocators sought more consistent, risk-aware outperformance.

In fixed income, overall search activity remained steady, but investor preferences shifted meaningfully. Multi-sector strategies rose to 20% of fixed income mandates, driven by appetite for more dynamic duration and credit exposure management. In contrast, interest in high yield strategies fell to 7%, reflecting concerns about stretched valuations and credit spread volatility. Emerging market debt continued to attract demand, supported by yield differentials and relative value opportunities.

Diversifying strategies saw growing interest, accounting for 13% of mandates, with hedge fund allocations increasing. Investor appetite focused on market-neutral, event-driven, and alternative risk premia strategies. The latter delivered +3.7% returns in Q1, extending a strong and consistent performance run that has re-energised allocator interest. Systematic strategies that de-emphasise directional risk also resonated in a quarter marked by reversals and dispersion.

Portfolio design

Amid market volatility and shifting policy landscapes, investors adapted their approaches. The first quarter was characterised by abrupt reversals in sentiment due to the reintroduction of tariffs by the US administration, reigniting stagflation fears.

As a result, there was a clear shift towards cash allocations, diverging from the traditional rotation into bonds. Meanwhile, gold reached record highs, reaffirming its role as a hedge against inflation and geopolitical instability.

Equity market volatility also influenced portfolio construction. Investors displayed caution around US equities and rotated towards European markets and targeted emerging markets, while also increasing allocations to enhanced and systematic equity strategies for sustainable alpha.

Manager performance

Performance across asset classes was varied. In equities, 56% of active global managers outperformed the MSCI ACWI benchmark in Q1, led by value and defensive styles. Impact strategies, however, continued to underperform across one-, three-, and five-year periods.

In fixed income, emerging market and multi-sector strategies outperformed, while high yield managers faced headwinds. Among hedge funds, macro and trend-following strategies lagged, while more beta-neutral approaches led gains.

Oliver Wade, Associate, Investment Content at bfinance: “As global markets contend with rising volatility, inflationary persistence and geopolitical disruption, investors are rethinking how risk is allocated – not just how much risk is taken. We’re seeing a pivot toward asset classes and strategies that offer both adaptability and resilience: private debt, multi-sector credit, real assets, and uncorrelated hedge fund styles. Manager selection has become a more targeted exercise, with allocators looking for precision tools to match a more complex environment”.

Frithjof Van Zyp, Senior Director at bfinance Australia: “The bfinance Risk Aversion Index hit a two-year high given the current geopolitical landscape and policy uncertainty. Manager positioning has remained resilient, however, we’re starting to see growing interest in certain geographies like Europe, where specialist managers might not be on the radar for some Australian asset owners”.

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Frithjof VanZyp

A new semi-liquid private equity market report from independent global investment consultancy, bfinance, has found that the market for semi-liquid PE funds has grown to more than 40 strategies with an estimated US$30 billion in assets under management (AUM), many of which were launched since 2020. This demonstrates the traction semi-liquid structures have gained among institutional investors, wealth management firms, and retail investors.

The report found that liquidity risks remain a significant challenge for investors. Many semi-liquid vehicles cap redemptions at 5% of net redemptions per quarter and 20% per year, and several impose lock-up periods of up to five years. These constraints raise concerns about potential liquidity mismatches, particularly in market downturns when redemption requests may exceed inflows.

The report also highlights client composition. A fund’s stability relies heavily on its investor base, and a diverse mix of institutional and retail investors can help mitigate liquidity risks, as different investor groups may have varying redemption behaviours. However, some funds targeting retail investors, wealth managers, and private banking clients may be more susceptible to sudden withdrawals. The report suggests that a well-balanced investor base is essential to maintaining fund stability.

In addition, there are certain concerns around fee structures, with many funds charging management fees based on net asset value (NAV) from day one rather than committed capital, as seen in traditional closed-ended funds. The report found that 50% of semi-liquid funds charge performance fees on unrealised gains, raising questions about valuation methodologies and investor fairness.

Despite debates around returns versus closed-ended private equity funds, long-term performance data remains scarce. With few semi-liquid PE strategies having track records beyond five years, the report suggests that investors should carefully assess whether these vehicles align with their objectives.

Frithjof van Zyp, Senior Director, bfinance Australia, said: “Interest in ‘Semi-liquid’ vehicles for private markets strategies is growing among Australian asset owners, in particular across the wealth segment. bfinance’s research team has been closely monitoring the recent development of semi-liquid private equity vehicles, and in this report we explore five critical questions every asset owner should evaluate before making an allocation.”

Anna Morrison, Managing Director, Private Markets at bfinance, said: “We are seeing a strong appetite for semi-liquid strategies, driven by the promise of liquidity and diversification. However, investors must be aware that these structures introduce new risks, including fee structures and liquidity risks, particularly in times of market stress. Due diligence on liquidity mechanisms and investor composition is paramount.”

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Frithjof VanZyp

Independent global investment consultancy bfinance has released its latest Manager Intelligence and Market Trends report, offering comprehensive insights on institutional investor activity, risk appetite, market developments and asset manager performance across all major asset classes.

The report includes data on institutional investors’ asset manager search activity from bfinance’s investor client base across 45 countries.

Top findings include:

• Private markets fundraising hit its lowest level since 2015, with activity slowing across Private Equity, Private Debt, and Real Estate. However, secondaries and infrastructure remained resilient, with record-breaking secondaries transactions and mega-fund closings in the pipeline for 2025.
• Private Debt remains a dominant force in private markets allocations, representing over 40% of private market searches, as investors look to enhance income generation and explore niche strategies such as Healthcare Direct Lending and Special Situations.
• Equity market concentration remains a concern for investors, with the big tech stops continuing to drive returns, which has led to a notable increase in manager searches, accounting for over 30% of new mandates in 2024. Investors are increasingly reassessing regional, style, and factor exposures, seeking to mitigate risks stemming from narrow leadership in large-cap equities.
• Hedge fund selection is increasingly geared towards convexity and market-independent strategies, with over 80% of searches targeting defensive diversification approaches. Investors continue to prioritise resilience against macroeconomic uncertainty and liquidity risks, even as directional strategies outperform.
• Fixed income strategies continue to play a crucial role in portfolio rebalancing, with Investment Grade and Emerging Market Debt manager searches reflecting a shift towards credit opportunities amid tightening spreads and evolving yield curve dynamics.
• Sustainability remains a key driver of product innovation and investor demand, with growing interest in Impact Private Debt, Carbon Trading, and Energy Transition Commodities. Meanwhile, regulatory developments and data consistency challenges continue to shape ESG investment decision-making.
• The re-emergence of Donald Trump as a key political figure has added a layer of complexity. Policy proposals such as tax cuts, regulatory shifts, renewed energy production initiatives and aggressive use of tariffs are reshaping market expectations, injecting further volatility into an already uncertain environment.

bfinance’s Australia Senior Director Frithjof van Zyp, said: “Private markets fundraising has declined to its lowest level since 2015, though certain segments, such as secondaries, have demonstrated resilience heading into 2025. Private Debt continues to dominate allocations, with growing interest in evergreen solutions and ESG-aligned strategies, including Impact Private Debt. Additionally, activity in liquid alternatives has increased, with a strong emphasis on convexity and market-independent strategies aimed at defensive diversification, as investors seek to enhance resilience against macroeconomic uncertainty and liquidity risks.”

Read the report.

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Ian Lyu

Independent global investment consultancy bfinance has appointed Ian Lyu as Director, Client Consulting, to support growing demand from institutional investors, wealth managers, and family offices navigating an increasingly complex investment landscape.

Mr Lyu’s appointment strengthens bfinance’s Australian presence as investors grapple with market volatility, shifting macroeconomic conditions, and the rising need for more sophisticated portfolio strategies.

With operations spanning major financial hubs including London, Chicago, Toronto, Sydney, Hong Kong, and Dubai, bfinance continues to expand its capabilities in manager selection, strategy implementation, and risk management. Mr. Lyu’s arrival follows a period of strong momentum for the firm, including a 2023 management buyout.

Bringing more than a decade of experience in investment and client advisory, Mr Lyu most recently served as Associate Director of Investor Relations at Wealth of Nations Advisors, where he connected global alternative managers with institutional investors across Australia and New Zealand. His career includes roles at Perpetual Investments, St George Bank, Forager Funds, and Delta Financial Group.

Frithjof van Zyp, Senior Director at bfinance, said:“Ian’s appointment comes at a pivotal time for bfinance in Australia and New Zealand. His experience across institutional and wealth sectors, combined with a strong understanding of investment strategy and manager selection, will be instrumental as we deepen client relationships and deliver targeted solutions in an evolving market.”

Based in Sydney, Mr Lyu will focus on expanding bfinance’s client base across Australia and New Zealand, reporting directly to Frithjof van Zyp. His role will include advising clients on manager selection and portfolio construction while ensuring bfinance’s research-driven approach continues to deliver value.

He will also play a key part in expanding the firm’s relationships with asset owners and investment decision-makers seeking independent, customised solutions to enhance performance and risk management.

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Frithjof VanZyp

The latest Manager Intelligence and Market Trends report from independent global investment consultancy, bfinance, has found that investors are increasingly looking to improve diversification across regions, styles, and market caps amid market concentration. Investor activity in Q3 2024 reflected a continued emphasis on strategic asset allocation, with fixed income, private debt, and infrastructure proving essential in supporting portfolio resilience.

The report includes data on institutional investors’ asset manager search activity from bfinance’s investor client base across 45 countries.

Investor activity

Investor interest in equity manager searches remains strong, with equity mandates comprising 31% of new manager search activity through September 2024, a significant increase from previous years. In line with this, investors are seeking regional, sectoral, and stylistic diversification to mitigate concentration risk in tech-driven markets.

Private market asset searches have shown some stabilisation. Private debt, particularly direct lending, continues to see robust demand, accounting for 20% of all new mandates. Appetite for illiquid assets remains healthy, with infrastructure and renewables continuing to attract significant inflows.

Fixed income search activity remains steady, comprising 11% of searches, with increased interest in unconventional vehicles such as Sukuk bonds and Collateralised Loan Obligations, reflecting investor demand for more nuanced yield strategies.

While interest in diversifying strategies remains relatively stable, there has been a notable increase in demand for hedge funds, particularly those offering defensive diversification. However, defensive overlay strategies, including currency overlays, are gaining traction as investors manage non-local FX risks in increasingly volatile environments.

Risk snapshot

Risk appetite among asset managers held firm in Q3 2024, even as global macroeconomic conditions exhibited volatility. The bfinance Risk Aversion Index peaked in August, ending the quarter at 0.5 – near the ten-year average and slightly more cautious than in prior quarters. This reflects both sustained

engagement in riskier asset classes and ongoing adaptations to economic signals. With 2024 coming to a close, market participants are challenged with balancing growth-oriented positions against a focus on risk mitigation amid persistent volatility.

Portfolio design trends

Central to discussions in Q3 2024 was the Federal Reserve’s long-awaited rate cut, with other central banks, particularly in Europe, also reducing rates amid slowing growth. While the market response to these cuts was modest, investors are positioning portfolios in anticipation of a gradual decline in interest rates over the coming year. The report indicated that investors are focusing on hedge funds and equity overlays to guard against market downturns and emphasising resilience through strategies offering convexity and market independence.

Equity demand is on the rise, driven by the need for diversification beyond tech-heavy markets, as the S&P 500’s performance was largely led by the “Magnificent Seven” tech stocks. This raises questions about portfolio rebalancing, including factor exposures and geographical allocations.

Fixed income strategies benefit from elevated interest rates, with increased focus on duration and credit risk, while securitised credit is gaining attention amid concerns over leveraged loans and high-yield bonds.

In private markets, investors are broadly positive yet remain cautious, particularly in private equity, where slower distributions are creating liquidity concerns. Direct lending in private debt shows resilience, with returns of 9-11% net of fees, and portfolio designers are considering secondaries and semi-liquid structures to improve liquidity.

Manager performance

Active equity manager searches, which comprised 31% of new mandates, continue as investors reassess their strategic positioning. With the MSCI EM up 8.7% in USD terms, growth equities, particularly within the technology sector, drove returns, posing challenges for active managers as market gains remain concentrated within a narrow selection of stocks.

Fixed income, however, saw strong results across investment-grade portfolios, with US corporate bonds yielding 5.7% and Euro corporate bonds at 3.3% in Q3. High-quality bond performance was particularly noteworthy in emerging market (EM) segments, with EM hard currency debt yielding 6.2% and local currency EM debt returning 9.0% in USD terms, driven by currency appreciation and falling local yields.

Hedge funds led the field in diversification strategies, with convex and market-independent approaches favoured for their defensive attributes. There has also been an uptick in interest in currency overlays and climate-focused segments, including carbon trading, reflecting ongoing sustainability initiatives.

Frithjof van Zyp, Senior Director at bfinance Australia, said: “Throughout 2024, we have seen a noticeable increase in search activity, with strong momentum continuing into Q3. This activity has spanned across both public and private markets, with searches ranging from absolute return fixed income, global equities with tight tracking error due to the YFYS performance test, semi-liquid infrastructure for wealth clients, and convex or divergent liquid alternatives for downside protection.

“Manager fees remain a key consideration for our super fund clients, with close attention being paid to transaction costs to provide a holistic view of total expenses. Additionally, ESG considerations have become a prominent focus within our search parameters, reflecting the advancement of client SRI policies compared to a few years ago.”

Kathryn Saklatvala, Head of Investment Content at bfinance, said: “Active equity managers are navigating a tough environment, with returns falling behind benchmarks in early 2024. This has intensified investor focus on diversification within equity holdings. On the other hand, we’ve seen significant momentum in fixed income and defensive diversification, with hedge funds offering market-independent strategies gaining prominence. ESG and climate-related investments remain high on the agenda for asset owners, even as the broader fundraising landscape moderates.”

ENDS

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Frithjof VanZyp

bfinance, the independent investment consulting firm, has released its latest report, “Investment Management Fees: Fairness Revisited,” with a comprehensive analysis of current trends and challenges in investment management fees and costs across various asset classes.

The authors argue that, as macroeconomic conditions and market circumstances change, investment fees and costs can be re-evaluated productively. The three main themes that the report focused on include: the rising costs associated with ESG resourcing (‘escalating ESG expenses’), slow-to-adjust hurdle rates for alternative investments (‘hurdle rate headache’), and a renewed focus on generating savings (‘room for reductions’).

The report commences with a broad look at fees—and trends in those fees—across a range of asset classes. In public markets, fixed income fees have compressed since the pandemic (average Investment Grade Bond strategy down to 21bps, average High Yield Credit down to 37bps). Yet higher interest rates and positive flows into Investment Grade bonds have eased pressure on many active managers. The shift from active to passive equity strategies is less dominant as a trend than it was during the 2010s, reducing pricing pressure: Emerging Market Equity fees are down a little to an average of 65bps, but Global Equity fees are unchanged. In private markets, high investor appetite helped asset managers to resist fee reductions in the 2010s, but weaker fundraising in 2022-2023 has strengthened investors’ negotiating positions: the changes so far are subtle, such as significant extensions to ‘first-close discounts,’ and are not yet reflected in clear falls in pooled fund pricing.

According to bfinance’s Australia Senior Director Frithjof Van Zyp, Australian investors are globally recognised for their strong fee negotiation skills.

“This, coupled with ongoing regulatory pressure, has resulted in significant fee compression. After securing favourable terms, especially for new investments, investors often hesitate to pursue further fee reductions to avoid straining relationships with their managers and a perception that little room for negotiation remains,” Mr Van Zyp explains.

“However, recent interactions with investors reveal that opportunities for additional outright savings still exist within their portfolios. We have also seen many instances where fee tiers can be adjusted to reflect continued growth in funds under management and lead to savings further down the road.”

Escalating ESG expenses

New research covering more than 650 Asset Owners and Asset Managers highlights pressures and differences of opinion. Nine in ten Asset Managers have increased their ESG-related spending relative to other spending over the past three years, driven by factors such as costly climate data and regulatory requirements. Yet how should these resources be paid for? Two thirds of Asset Owners believe that ESG resourcing should not affect a strategy’s price, but fewer than half of Asset Managers (and only a third of contributors from Real Asset investment houses) agree. Only 42% of Asset Owners are satisfied with the “level of transparency” from their Asset Managers on ESG-related costs.

Hurdle rate headache

Despite higher risk-free rates, hurdle rates for hedge funds and private markets have largely remained static, though there is some evidence of change – particularly for Separately Managed Accounts. In sectors where expected returns have increased directly as a result of the higher-rate climate, such as Hedge Funds and Private Debt, the lack of change in hurdle rates results in greater overall fee leakage and a higher percentage of overall return going to the GP. This raises questions of fairness. Only 27% of hedge funds, by bfinance’s count, have a hurdle rate in place.

Room for reductions

Even where there is no prevailing downward trend in asset management fees, evidence from bfinance client fee reviews shows that there are still savings ‘on the table’. Tools such as Transaction Cost Analysis can provide new lenses for investors to address negotiation opportunities. Importantly, the greatest improvements may not necessarily be found where investors expect: low-cost strategies, for example, do not tend to draw as much attention as high-fee asset classes but have represented an outstanding source of savings in practice.

Duncan Higgs, Managing Director and Head of Portfolio Solutions at bfinance, said: “We are delighted to be able to share the newest instalment in our long-standing Investment Management Fees report series, examining key trends and themes in 2024. It is our goal to continually support transparency, rigour and fairness on this crucial subject. We hope that this research helps both asset owners and asset managers in serving the best interests of the underlying owners of capital.

For investors, improvements on fees and costs can deliver the ideal outcome: additional performance with zero additional risk; risk-free alpha, in other words. However, delivering savings is not straightforward, especially after more than a decade of cost scrutiny driven by both investors and their regulators. It can be difficult for investors to access cost comparisons that are suitably specific and customised: simplistic benchmarking can often be too generic. It’s also important to have insight on other subjects that can affect fee and cost discussions: product knowledge, flows, performance metrics, market conditions and more.”

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Frithjof VanZyp

A new survey conducted by the independent global investment consultancy, bfinance, on the topic of endowment and foundation investment has revealed a challenging investment climate, asset allocation intentions, and the importance of ESG. The Endowment & Foundation survey, dated November 2023, features data from 61 asset owners from 16 countries.

Significant investment challenges

The surge in developed market inflation has had serious implications for endowments and foundations whose return targets are either directly or indirectly tied to domestic CPI and similar metrics. More than 40% of investors say their investment returns have been below target over the past three years (or below expectation, in the cases where no formal target exists but the entity has an expected long-term return).

The ‘average’ respondent invests 41% of their portfolio in private equities and 18% in bonds, with 35% in ‘alternative’ asset classes. Even more interesting, perhaps, is the data on current skews versus long-term strategic asset allocation. Some 52% of investors are underweight private equity while 37% are overweight cash. These figures indicate that temporary over-exposures to illiquid assets seen in late-2022 (the result of public market volatility) are no longer in effect.

Looking ahead, 62% of respondents expect to increase exposure to private markets over the next 18 months, followed by fixed income (31%), and equities (22%).

Outsourced operating models are popular but costs cause concern

The endowments, foundations and non-profits in this study tend to have highly outsourced investment models: 23% have a ‘fully delegated’ or ‘outsourced CIO’ (OCIO) approach, while a further 48% describe their investment activities as ‘strongly outsourced’ though not fully delegated. There is no notable trend towards insourcing or outsourcing at present.

The asset classes where respondents most commonly invest entirely via external managers are liquid alternatives/hedge funds (85%), private debt (85%), and equities (83%). Meanwhile, significant minorities use internal teams for most or all investments in currency overlay (28%), real estate (18%) and fixed income (17%).

On average, respondents are paying 0.6-0.7% of assets each year in investment-related costs (median 0.5-0.6%). External asset manager fees heavily dominate the overall picture and, for more than a third of respondents, represent over 90% of all costs.

Responses indicate a widespread desire to reduce cost. The vast majority of respondents agree (28% ‘strongly’, 62% ‘somewhat’) that they ‘should be paying less’ in investment-related fees than they do at present. While 49% “strongly agree” that monitoring and benchmarking costs is a high priority, only 10% express high satisfaction with their current approach to benchmarking asset manager costs/fees.

With regard to investor satisfaction with manager performance, some 63% of investors in externally managed ‘multi asset’ strategies are dissatisfied with performance in 2023 (though, interestingly, feedback on OCIO managers— who also have a multi asset remit—is more positive). Over 40% of investors in externally managed equity strategies are also dissatisfied. Conversely, feedback is more positive for managers in (typically high-fee) illiquid asset classes including private debt (88% satisfied) and infrastructure (83% satisfied).

Endowments and foundations drive ESG and impact investment innovation

Given that endowments and foundations have stakeholders that are orientated towards ethical responsibility and investor in these groups also enjoy fewer specific regulatory constraints, they have been driving some of the most innovative impact, ESG and climate-related investment programmes.

Some 80% of respondents say ESG considerations are ‘very’ or ‘moderately’ important to their investment strategy and implementation. A more granular and informative picture can be gained through examination of specific ESG-related practices across asset classes.

Notably, while equities remain the dominant asset class for most of these practices, ‘impact investing’ shows a strong private market focus. 97% of equity investors integrate ESG into the investment process in this asset class, followed by fixed income (79%), private markets ex. real estate (58%), private real estate (48%), and hedge funds (15%).

It is instructive to contrast the data on practices with expectations that investors have for external asset managers in these asset classes. For example, 84% indicated that they have some sort of carbon-related objective in equities, but only 50% would be “unlikely to hire” an equity manager who cannot report on carbon or greenhouse gas emissions/intensity for the portfolio. Similarly, 92% indicated that they do “active engagement/stewardship” in equities, but only 47% would be “unlikely to hire” an equity manager who cannot demonstrate specific outcomes for engagement.

A significant proportion of this community invest in explicitly impactful strategies, particularly in private markets. Within this cohort, 38% are willing to accept a somewhat lower financial return for an impact investment. These investors are generally seeking both social and environmental impact (55% indicate that they’re equally interested in both), though a minority of respondents primarily look for one or the other.

Frithjof Van Zyp, Senior Director at bfinance in Australia, said: “Within our inaugural Endowment and Foundation Investment Survey, interesting insights have surfaced. With 42% expressing dissatisfaction over investment returns, 62% anticipating a strategic shift towards greater exposure to private markets, and 57% highlighting the critical role of ESG considerations in shaping investment strategies, the landscape is evolving. These findings offer valuable perspectives on how the non-profit community is navigating inflationary pressures while balancing performance, diversification, and sustainability in their investment approaches.”

Kathryn Saklatvala, Head of Investment Content at bfinance and lead author, said: “It’s a privilege to be able to examine the challenges and trends within the endowment, foundation and charity investor community at this interesting time. Inflationary conditions and higher interest rates affect different groups of investors in different ways and there is evidently still a strong relationship between inflation metrics and return targets for many of these entities, which has contributed to a significant degree of under-performance.

This investor community has long been recognised for its ability to foster innovation and creativity, thanks in part to liability profiles and lighter regulatory constraints than we often find in the pension and insurance sectors. US endowments’ historic activity in illiquid investments is one often-noted example of this effect. More recently, we have seen this group developing some of the most interesting and forward-thinking impact and climate-oriented investment programmes that we’ve yet seen. As such, the third section of this three-part study focuses on ESG and impact investing.”

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Frithjof Van Zyp

bfinance, the leading independent investment consultancy, has released fresh research on the rise of ‘impact’ private equity funds, showing the remarkable evolution of ‘impact’ private equity landscape while also revealing current ‘best practices’ and ‘red flags’ from recent asset manager research.

While the emergence, rapid growth and maturation of the ‘impact’ investment sector represents an extremely positive development for the investment industry, asset owners are now grappling with the challenging practical task of assessing and comparing these strategies. Momentum in ‘impact’ investment has been particularly strong in private equity but, amid concerns around ‘impact-washing’ and ‘SDG-washing’, it is crucial to set meaningful standards. Therefore, it is important to understand: what is an appropriate standard to which investors should hold ‘impact’ private equity managers accountable?

Frithjof Van zyp, Senior Director at bfinance says “Growing client interest in relatively nascent Impact private equity strategies has resulted in bfinance conducting multiple searches across this space over the last 12 months. Interestingly these searches have uncovered a wide spectrum of available strategies which can vary greatly by impact type and philosophy. This has helped bfinance develop practical assessment criteria at a firm, fund, and deal level as outlined in the paper.”

Strategies

Private equity strategies with an explicit mission to deliver impact are a relatively new and rapidly evolving breed, first appearing in the mid-2010s and now numbering well over a thousand. Investors can now enter this asset class with a reasonable expectation of non-concessionary returns alongside intentional, measurable impact, with target IRRs ranging from 10% to 25%.

While initial launches were more likely to have a venture capital or growth focus, more recent vintages have included a growing number of buyout funds—some of them over a billion US dollars in size. Dedicated impact fund-of-funds have also emerged, as have specialist secondaries funds and co-investment funds, not to mention custom separately managed accounts (SMAs). These developments are hallmarks of an increasingly mature asset class.

Managers’ approaches to impact vary greatly. Most focus on a multiple environmental and social impact themes, though significant minority of strategies (almost a third) focus solely on environment impact considerations—chiefly climate. Nearly a third of managers use a methodology relating to the UN Sustainable Development Goals. Fund of funds deliver a more ‘indirect’ and diversified impact profile than their direct fund counterparts, given that they are further from the underlying assets, but investors should not underestimate their potential contribution: the most credible FoFs are actively driving impact ‘best practice’ among underlying GPs, helping managers to strengthen impact processes and reporting standards.

Best practices and pitfalls

It is far from straightforward to assess the credibility of impact private equity strategies. Black-and-white requirements are problematic in an essentially immature sector. Idealised impact investing best practice does not yet translate into real life. Actual track records are short; KPIs are problematic; managers are often unable to demonstrate intentionality, additionality or a clear theory of change to the extent that one may wish. The investor must find a way of navigating a highly imperfect world.

Based on recent manager research, however, there are significant attributes that investors can now look out for when weighing up today’s impact private equity fund offerings. These ‘best practice signals’ and ‘potential red flags’—indicators that characterise stronger and weaker approaches—are presented in this report. They can be divided into three groups: those that relate to the deals, those that relate to the fund and those that relate to the asset management firm.

At the level of the deal investors can look for specific indicators with respect to sourcing, due diligence, measurement, management/stewardship and the approach to exit. At the level of the fund one can scrutinise the nature of impact targets, resourcing, fee arrangements and more. At firm level investors can look for key indicators of impact commitment and culture with policies, governance and senior management KPIs all under scrutiny.

None of these indicators represents a silver bullet but, together, they can help investors to form strong-yet-pragmatic expectations and gain the confidence needed to enter this asset class.

Anna Morrison, Senior Director Private Markets at bfinance, says: “In the last couple of years we have seen an exceptional increase in interest and demand for ‘impact’ strategies among our institutional investor client base. Although this is evident in many asset classes, including public equities and real assets, activity has been particularly strong in private equity. Yet when it comes to implementation, investors can find it extremely difficult to assess and compare strategies from an ‘impact’ perspective: it is a challenging subject, not least because managers’ practices are evolving. I’m excited to share this report since it gives some pragmatic insight on what we’re really seeing at the moment when scrutinising fund managers, in terms of the stronger versus the more problematic candidates.”

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Sebastian Mays

Specialist global investment consulting firm, bfinance, has strengthened their presence in Australia with the appointment of Sebastian Mays to the newly created role of Business Development Director. This new position has been created to facilitate and drive the ongoing expansion of bfinance’s business in Australia.

Mr Mays has 8 years of experience in the investment management industry and holds both a Bachelor of Arts from Monash University and a Certificate of Applied Finance from Macquarie University. He started with bfinance officially on 14 June, 2022.

Prior to joining bfinance, he began his career at Shed Enterprises, a placement agent specialising in asset management capital raising. During this time, he held numerous positions including Investment Specialist and Business Development Manager.

Mr Mays will drive the development of bfinance’s growing suite of solutions including fee benchmarking, operational risk management and ESG analysis.

“I am excited to join the bfinance team and I look forward to furthering their growth within the Australian market,” Mr Mays said.

“Given the difficulty of asset allocation in our current market environment, asset owners will be looking for specialty knowledge and insights from their consultants. I strongly believe that close relationships and a dynamic knowledge of client portfolios is critical in managing individual portfolios and I look forward to furthering bfinance’s strong focus on this.”

Senior Director Client Consulting at bfinance, Frithjof van Zyp, said Mr Mays will play a pivotal role in the growth of bfinance and will incorporate his expertise within the wealth management sector.

“It was my pleasure to welcome Sebastian to the bfinance team earlier this month. His positive attitude, coupled with his experience in engaging both institutional and wholesale investors across multiple asset classes, will allow us to continue delivering bespoke solutions across Australia’s growing market of asset owners,” Mr van Zyp said.

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