This report guides asset allocators in evaluating and managing private market funds that invest for positive impact on society and the environment. The report focuses on providing practical and actionable guidance for enhancing their approach to building and managing portfolios of impact funds. It covers pre and post-investment stages, including conducting diligence of impact managers and monitoring and engaging with them.

One of the ESG issues faced by asset allocators is determining how well a general partner (GP) has integrated their impact strategy into operational systems for measuring and managing impact performance across the investment lifecycle. The report recommends assessing the GP’s impact framework with Key Performance Indicators (KPIs), documenting impact processes, aligning impact management framework with required frameworks, and considering and mitigating ESG risks and negative impacts.

The report provides guidance to asset managers on how to manage a fund or portfolio of funds. One of the ESG-related challenges is identifying and managing ESG risks or opportunities that are financially material to the companies in which one invests. The report recommends adopting ESG risk management systems that consider the potential ESG risks and negative impacts of their investments at multiple stages in the investment cycle.

Asset owners like pension funds, family offices, endowments, and sovereign wealth funds, often face challenges in evaluating and monitoring the impact performance of intermediary asset managers. The report recommends developing a framework for monitoring impact performance, specifying reporting requirements within side letters, requesting regular check-ins to discuss impact, and supporting GPs in collecting data for and reporting on impact results.

The report provides guidance to general partners in funds to help strengthen their impact management approach and practice. Using the right KPIs, aligning impact results with their impact thesis, reporting on basic ESG data as well as impact data and providing regular updates on impact data. This will help the GP in meeting their impact promises to limited partners.