Long Read

To Fund a Fund

How funds of funds can unlock more capital for impact  

To Fund a Fund  

How can we mobilise more capital for impact?  

Even though the impact investing market has exceeded the trillion dollar mark worldwide, the portion of impact investing in Europe that is additional, i.e. generating an impact that would have not happened, still represents a relatively small niche: €38 billion, according to EVPA’s report Accelerating Impact.  

Impact funds of funds have emerged as a potential tool to mobilise more institutional funding (larger ticket size), increase critical mass in the investing for impact space and play a catalytic and ecosystem building role for impact fund managers. But how does this add up to mobilising more resources?  

We reached out to EVPA’s funds of funds community for answers. We were particularly interested to investigate the intentionality, measurability and, most importantly, additionality of funds of funds, as these aspects are central to whether resources mobilised are really impact resources. 

Role call

Europe’s funds of funds are not many in numbers, but very diverse in terms of experience, geographical focus, fund managers supported and roles played in the impact ecosystem. Among the first seven funds of funds covered, we identified three main roles they can play in the impact ecosystem, sometimes in combination: 

  • Market builder: they support first-time impact fund managers by providing crucial financial and non-financial support. They could be backed either by public or private resources.   
  • Market catalyser: they typically run in-depth due diligence and act as quality certifiers in the market, supporting impact funds and attracting further resources from followers. They also support the underlying funds embedding impact in their strategy. The funds supported are often experienced but struggle to access institutional resources to grow their assets under management.  
  • Market access provider: they help certain categories of asset owners to access impact investing opportunities they would not have otherwise, thus mobilising further resources for impact. The type of asset owner targeted can vary significantly, from a group of high-net-worth individuals in the Netherlands to the whole retail market in the UK and beyond.  

Are funds of funds an effective vehicle to accelerate the transition of mainstream financial actors into investing for impact?  

Accelerating this transition is the ultimate ambition of Snowball, a UK-based (but investing globally, and with a global investor base) fund of funds which invests all its assets adopting an impact investing approach. They pursue market-rate returns following a portfolio diversification strategy among a variety of asset classes. They are developing a solid track record (they use the ARC Balanced Indices to track the performance of the fund alongside comparable mainstream products), which will convince institutional investors to follow first, and ultimately unlock retail investors.  

“The six original founders designed Snowball’s mission and democratising Theory of Change to prove it is possible to transition all investments so that they place their impact on exactly the same level of importance as financial returns,” said Laura Boyle, head of stakeholder engagement at Snowball. “We are passionate that all investors and savers should have access to deeper impact investment opportunities together with personal financial security for the future. The pathway to achieve this change is to make Snowball available first to institutional investors, and then open it to retail.”  

A first necessary step to achieve this systemic change is to build and strengthen a critical mass of impact funds which can absorb the resources shifting to impact. In this respect, we noticed a difference between developed and developing impact investing markets. In the former case, like in France, the National Promotional Institution, Banque des Territoires - Groupe Caisse des Dépôts et Consignations (CDC), focused primarily on being a market catalyser. This means Banque des Territoires leveraged their impact investing experience and reputation as a quality stamp to convince others to follow. They proactively support impact funds to improve their impact practices, embedding them throughout the whole investment cycle. 

Nascent impact investing markets like Italy require both market builders and catalysers. Both roles are necessary as a few experienced impact fund managers need support to launch and grow their assets under management. A growing number of fund managers are interested in launching their first impact funds in the country. Fondo d’Investimento Italiano SGR, a key institutional investor in Italy participated by Cassa Depositi e Prestiti (CDP) and a number of other institutions (e.g. banks, pension funds and the banking association), is raising additional capital for its FOF Impact, a fund of funds and co-investment vehicle dedicated to impact funds addressing the Italian market. Fondo Italiano has played a similar role when facilitating the creation of functioning private equity, private debt and venture capital markets in Italy, having invested in over 70 funds dedicated to the country and supporting over €10 billion of capital. 

The European Investment Fund (EIF) is in the privileged position to tailor its role to the status of the different countries in which it operates; it can be a market builder, catalyser and access-provider. In the impact investing ecosystem, the EIF plays mainly the roles of builder and catalyser, while they act as access-providers more frequently in the traditional private equity/venture capital market.  

So far the EIF has not acted as an access-provider in the impact ecosystem; this suggests that European impact funds still need to grow in number and in resources managed to observe EIF and other funds of funds shifting to access-providers role and mobilising mainstream resources at scale. This finding is corroborated by the fact that the two access-provider funds we interviewed, Snowball and Wire Group, had to expand their focus either in terms of asset classes or geographically to guarantee a coherent risk/return profile to their investors.  

Furthermore, the majority of funds interviewed started fundraising from less institutional sources, such as family offices, high-net-worth individuals and foundations. Although these funds tailor their fundraising strategies in some cases, they all face challenges in attracting institutional sources.  

In Africa

Looking at less developed impact investing markets, such as those in sub-Saharan Africa, we have seen funds of funds being both market builders and catalysers. This is the case for the French fund manager Investisseurs & Partenaires (I&P), which launched I&P Development II ten years ago to support fund managers in sub-Saharan Africa and Madagascar.  

I&P Development II uses a mix of instruments: equity (anchor) investment, grants to cover for set-up costs and technical assistance for SMEs in the fund’s portfolio. The fund takes on both the builder and catalyser roles because of the groups it supports: both first-time impact fund managers and existing funds that are struggling to attract investment.   

Another example that bridges the builder and catalyser categories is Oryx Impact, a fund of funds that invests into African funds and helps them professionalise and attract further private investors. On top of equity investments, they offer technical assistance to improve ESG and IMM skills. They also apply a gender lens, proactively seeking women-led management teams that in turn are more likely to invest in female-led businesses.   

In Europe, market building and catalysing efforts are backed by public institutions, whereas in sub-Saharan Africa these efforts are supported by private investors, such as philanthropic institutions and development finance institutions. The case of the MasterCard Foundation Africa Growth Fund, which recently allocated $200 million of its assets to a fund of funds for which I&P is the fund advisor, suggests that foundations could leverage the impact and financial know-how of experienced fund managers to strengthen impact investing ecosystems in contexts where institutions are particularly weak. This pioneering effort could pave the way for other foundations to follow. 


The additionality of all funds interviewed is related to their contribution to a well-functioning impact investing market. They achieved their additionality through different strategies, based largely on their role in the ecosystem.  

Supporting first-time fund managers, which is the role of market builders, requires time and in-depth non-financial support. Such support also entails a higher execution risk, due lack of previous track records. As stressed by Luigi Tommasini, senior partner at Fondo Italiano d'Investimento, “Developing an ecosystem of impact fund manager requires a patient, systematic and structured approach. Managers need to develop and focus on a solid governance for their funds, a coherent risk/return profile and a clear investment strategy. When these elements are present, the market functions well and attracts capital, both for the investors of the funds and for the companies in the portfolios. We have seen it already in the Italian private equity, private debt and venture capital markets.”  

Sometimes this in-depth non-financial support requires extra resources. For example, I&P Development II offers specific grants to cover set-up costs of first-time fund managers. Given the additional burden for fund managers, the market would benefit from a separate technical assistance facility, supported by public or private grants and capacity builders, such as incubators and accelerators.  

“In the long term,” said Sebastian Waldburg, co-founder of Oryx Impact, “the significant non-financial support we provide would not be financially sustainable, therefore technical assistance facilities funded by philanthropic capital will become increasingly needed.” Further synergies still need to be explored in this area.  

Oryx Impact, as mentioned, bridges the market builder and catalyser roles. The work of market catalysers is also very resource intensive, as it requires in-depth due diligence of both impact and financial performances, as well as a significant transfer of impact know-how. Catalysers’ additionality is linked to the capital leveraged thanks to their anchor investment, which usually acts as a quality stamp in the market. Their ability to improve their fund’s IMM practices is another mark of their additional effect.  

To increase their additionality as a market catalyser, Banque des Territoires – CDC often favours the launch of “sharing funds”; they commit to donate part of the fund’s income to a pre-determined foundation or charity, and encourage other investors to do the same. The benefits of sharing funds are twofold: they unlock additional capital for impact, while inspiring institutional investors to consider impact opportunities. However, sharing funds face some challenges.  

As sharing a part of the investor’s return of the funds (above a determined threshold) is a prerequisite for the CDC, CDC is often the first investor to subscribe to those specific shares. CDC may be followed by other investors later during the subscription period of the fund. Although creating sharing funds may be difficult, especially when the return of the fund is very low, CDC notices that over time more institutional investors are willing to share a part of their return with charities or recognised public utility foundations. 

Funds of funds are investment vehicles; the amount of risk they can take is often limited, and so is the number of impact fund managers that take risky impact bets or accept lower returns in exchange for greater impact. 

EU guarantees represent a great opportunity for European funds to take on additional risks and grow their additionality, by focusing on more underserved segments of impact fund managers. CDC is currently considering to bid for benefiting of a guarantee under the next InvestEU Social Window Call for Interest, which would allow them to increase the universe of social impact possibly both in terms of geographical scope and underlying financing instruments. 

In emerging contexts, market builders and catalysers also promote systemic change, shifting the financial markets from one dominated by foreign investors towards one more locally driven, by empowering local investors. Hugues Vincent-Genod, director of fund of funds at I&P stressed this concept:  

“As long as the SME investment ecosystem in emerging markets is made of foreign investors deploying mainly foreign capital, this effort will remain a drop in the ocean. If you want to build the sector and answer the need for SME finance, you need to enable local investors to get set up, support them when they need capacity. There are strong teams emerging on the continent and they are still very underserved.” 

Funds of funds that act as market access-providers are important to unlock additional resources, thus contributing to the growth of impact funds and their underlying impact generated. The common challenge for these funds of funds is t0 prove their investment strategy is a valid alternative to more traditional ones in terms of financial performances. Market access-providers must embed impact in all their processes, with all the extra costs this may generate.  

It is sometimes challenging to ensure the financial sustainability of the model, but the first results achieved by funds like Snowball look very promising. Financial returns are comparable to those in the market, and they performed better than average in times of crisis. The pathway to unlock mainstream resources at scale is still long, as traditional LPs usually require 20 years of track records to consider an investment safe, but the journey in the right direction is underway. 


The IMM Challenge

A common element of additionality among all these funds of funds is their focus on building a solid IMM capacity in their fund managers, helping them embed impact in their DNA and processes. Funds of funds need to manage impact at three levels: the impact they have on fund managers, investees and final beneficiaries. Their positioning adds a level of complexity compared to impact funds – that means trade-offs. They need to ensure some degree of comparability of impact performances among fund managers, while keeping the right indicators for both fund managers and underlying investees, all without overburdening these stakeholders. 


Way to go

Funds of funds are an important tool to build new impact investing markets and strengthen existing ones. They do this by channelling financial resources and building much needed capacities. However, impact fund managers are just a piece of the impact ecosystem, and other investors along the continuum of capital are needed to support impact organisations throughout their lifecycle. As indicated by Cyril Gouiffes, head of social impact investments at EIF:  

“For an impact enterprise the support from an impact fund is relevant in a certain moment, but equity investments cannot do it all. Impact funds can accelerate innovation, but in some other cases are not good or suitable players to finance an impact enterprise, or should be accompanied by other forms of funding.”  

There are great synergies still to be explored with other capital providers, policymakers, intermediaries and corporations. Philanthropic institutions could support TA facilities of impact funds of funds, strengthening their support to impact funds. Foundations with a market building objective could leverage the know-how developed by pioneering funds of funds in the last decades to channel investments aimed at strengthening impact fund managers locally.  

Join us at Impact Week to explore synergies like these and dive deeper on the roles of funds of funds in the ever-expanding impact universe! 


Special thanks to those who shared insights for this article:  

Banque des Territoires - Groupe Caisse des Dépôts et Consignations (CDC), Armelle Ledru  
European Investment Fund, Cyril Gouiffes  
Fondo Italiano d'Investimento SGR - FOF Impact Investing, Luigi Tommasini  
Investisseurs & Partenaires, Hugues Vincent-Genod  
Oryx Impact, Teresa Guardans, Sebastian Waldburg and Maria Oliva Farriol  
Snowball Impact Management Limited, Laura Boyle  
Wire Group, Puck Hegeman 

co-funded by the EU