Spain-headquartered Arcano Asset Management has held a final close for Arcano Impact Private Equity Fund (AIPEF), its first fund-of-funds dedicated to impact strategies.
Ricardo Miró-Quesada, partner and head of private equity at Arcano, told Unquote that the fund took around a year and a half to raise. The vehicle had a EUR 250m-EUR 300m target and held an initial close in 2021, raising EUR 180m.
“Launching the fund was a long-term plan and we had been thinking about the fund for many years, but we were waiting to see enough impact funds that met our criteria,” he said. “Once we saw that this universe of impact funds with attractive returns was there, and with demand from LPs, we decided to launch the fund.”
The fact that the GP waited to launch the fund also means that, while it will invest in some emerging managers, it also has the option to invest in GPs who are raising a later vintage of a proven impact strategy, Miró-Quesada said.
The fund has deployed more than 50% of its capital to date and it expects to deploy the remainder of its dry powder over the course of 2023, Miró-Quesada said. Given the pace of deployment, it expects to launch its second impact fund-of-funds at the end of next year, he added.
The vehicle is an Article 8 fund under the EU SFDR.
To measure the impact of its investments, Arcano will use its own proprietary analysis model, as well as frameworks including the UN Sustainable Development Goals, Impact Management Project or IRIS+, according to the press release.
The firm already offers a series of ESG products and has done so since 2018, according to the press release. These include Arcano Earth II, European Income Fund - ESG Selection, European Senior Secured Loan Fund - ESG Selection, and Low Volatility European Income Fund - ESG Selection.
AIPEF's LP base includes institutional investors from Spain, Italy, Northern Europe and Latin America, as well as private banking clients, according to a press release. The fund’s commitments comprise a roughly 50:50 split between each group, Miró-Quesada said.
The fund’s institutional investor base is made up of organisations including pension funds, insurance companies and large family offices, Miró-Quesada said.
While Arcano has been investing in private equity since 2006, the firm was aware that it would need to consider the fact that AIPEF was the first fund in a new strategy. “We knew that before going to international LPs, we wanted to have a solid institutional and private banking LP base in Spain,” Miró-Quesada said. “This was mainly done in late 2020 and early 2021, and after this we raised capital internationally, including from the Nordics, Germany and Latin America.”
AIPEF will make primary fund investments (at least 70% of the vehicle), as well as direct co-investments and secondaries (up to 30%), where it will focus on social and environmental impact companies.
It has made more than 20 investments so far and will invest in developed markets, including the US and Europe. “Even in developed economies, there is so much to be done when it comes to issues including the ageing population, improving education, and using technology to help more people at different stages of their lives,” Miró-Quesada said.
At least 80% of the fund’s primary commitments will be dedicated to buyouts and growth investments, with the balance for venture capital. It will deploy tickets of EUR 3m-EUR 30m, Miró-Quesada said, typically backing funds of EUR 100m-EUR 3bn in size that focus on the mid-market.
“The funds that we work with don’t just see us as capital providers,” Miró-Quesada said. “US investors appreciate us telling them what we see in Europe, for example, and vice versa. We sit on the advisory boards of these funds as we want to add value to these GPs.” This is particularly important given the necessity of keeping up to date with the EU Taxonomy and general impact regulation, he added.
Given that impact is still a relatively new asset class, the firm expects to see an uptick in impact secondaries in 2023 and 2024, Miró-Quesada said, meaning that the firm is likely to be more active in this area in the fund’s second vintage.
The strategy will target funds and companies that address the UN’s SDGs focusing on the healthcare, education, ecological transition (namely decarbonisation and waste reduction) and sustainable agriculture sectors.
Arcano Asset Management – Ricardo Miró-Quesada (partner, head of private equity).
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