Industry News

The Rise of Impact Investing: Can Private Equity Investors Do Well Without Doing Good?

Maddy Wattles

August 23rd, 2023

The Rise of Impact Investing: Can Private Equity Investors Do Well Without Doing Good?

Sceptics of the private equity industry have observed with cynicism the adoption of “impact” into the vernacular of investors. Many believe the epithet to be a vacuous symbol, whose very appearance in the context of the private markets is at best grossly contradictory, at worst greenwashing. And yet, cumulative capital raised for funds dedicated to the impact agenda continues to climb. Between 2019 and 2022, private equity investors launched more than 330 impact funds, and assets under management in these funds grew from $90 billion to $270 billion. Strikingly, whilst the overall private equity deal volume languished between 2021 and 2022, the global volume of climate-oriented transactions (across energy transition technologies, for example), grew by nearly 7% (McKinsey Sustainability, 2023).

Spain has been no exception to the slump in private equity deal activity that has defined recent years. This May, drawing on data from Dealogic, Mergermarket reported that total Iberian deal volumes in YTD 2023 add up to $5.8Bn over 241 deals, compared with $11.6Bn across 301 deals in YTD 2012. This paints a particularly grim picture for 2023 when we recall that 2012 was the year the euro-zone was crippled by the sovereign debt crisis. Despite this relative dearth, however, businesses in the energy transition sector have reason to be optimistic. Several Spanish photovoltaic businesses, basking in the warm glow of impact-led investors, have enjoyed significant growth milestones this year, with Catalonian Sunhero announcing plans to raise a “significant” Series B round in 2024 and Andalusian Greening Group eyeing up acquisition targets in Europe.

Therefore, whilst the sceptics are right to challenge greenwashing, the numbers can only suggest that impact investors are putting their money where their mouth is. And whilst an investment’s contribution to the environment is often used as a yardstick for “impact”, we are also beginning to see an increased level of scrutiny on that investment’s contribution to the betterment of livelihoods; that is to say, its social repercussions. This increased scrutiny – coupled with the notable spike in transaction activity enjoyed by impact funds in the face of an industry-wide decline in deal-doing – begs the question: has impact investing transformed from being merely a fashionable trope into an absolute prerequisite for investors? By discussing this topic with Eduardo Diez-Hochleitner – member of the Global Steering Group for Impact Investment and founder of one of Spain’s most successful impact funds to date, GAWA Capital Partners – we are able to elicit some answers. 

Creating Impact

Eduardo Diez-Hochleitner’s career has been nothing short of diverse, as much in sector as in function. Today, he is the Chairman at private equity-backed telecommunications giant MásMóvil: the largest business in Spain to be a certified “B-Corp”. Earlier in his career, Eduardo was at the forefront of multiple M&A deals and IPOs as CEO, CFO and COO within investment banking, media and private equity. In 2009, Eduardo ventured into the world of impact investing, co-founding GAWA.

GAWA focusses on developing countries, investing equity and debt in a carefully selected portfolio of businesses that provide opportunities for low-income communities. To date, GAWA has managed and advised over €220m, with investments in 17 countries, directly impacting 458,000 families. One of the flagship investments which placed GAWA decisively on the map of impact-led financing was their support of Indian microfinance institution, Jana Small Finance Bank – a business focused on financial inclusion for excluded urban households. Commenting on this venture, Eduardo observed:

“The amazing thing about this investment was the nature of the team there. They had a clear vision and a goal to accomplish, which was to serve people living in the slums by using high-end technology. What started out as a microfinance institution is now a successful bank, where impact investors such as Lok Capital, MSDF and GAWA were eventually substituted by large private equity funds such as TPG and Morgan Stanley Private Equity. As an impact investor, it’s very rewarding to see the transformation and growth of a business, its ability to attract new types of investors, and the part you have played in that journey”

GAWA Capital’s partnership with Jana Small Finance Bank was a success in terms of value creation, delivering an impressive IRR to its investors. Nonetheless, what made this case a “successful investment” in Eduardo’s judgement was its contribution to the financial inclusion of families in urban India. In other words, LPs were able to “do well whilst doing good”, but the extent to which they did “well” was inextricably linked to the number of lives that were positively impacted. When GAWA made its first investment, the company was reaching 300,000 women and by the time of exit the company was serving over 3,000,000 women.

Measuring Impact

For Eduardo, the rigorous measurement of impact is a linchpin of responsible investing. Therefore, across its entire portfolio GAWA Capital aligns carried interest with the achievement of certain impact goals. By holding themselves to an exhaustive impact measurement system, GAWA’s investors will only reap the rewards of their investment if a strict set of criteria have been met across the investment cycle. Last year, GAWA’s blended finance fund (the Huruma Fund) provided debt investment to Cresol: a Brazilian cooperative that supplies rural credit for family farming in the southern region. The goal of the institution is to foster the implementation of climate-smart practices and technologies, with a particular emphasis on the inclusion of women and young people. Eduardo highlighted the detailed and rigorous approach to impact measurement in the case of their investment in Cresol:

“We use three sets of impact metrics to make sure our impact thesis is implemented: transformational metrics to assess how the company is serving the target low-income population, social performance metrics using a tool called Cerise SPI which assesses the investee’s social and environmental performance systems, and outcome metrics to measure the increase in the number of beneficiaries that are experiencing improvements in their productive activities. These metrics ensure that we are doing the right things at each stage to most effectively reach our impact goal, which – in the case of Cresol – is to improve smallholders’ lives. These metrics will be monitored during the investment life, measured again at the end of the investment and then audited by a third party chosen by the LPs”.

It is clear, then, that for GAWA, “impact” is not merely an empty buzzword woven into their due diligence processes, as the cynics would have it. Rather, impact is something that is carefully defined against a set of measurable dependent variables (for example, the number of farmers in southern Brazil with access to tailor-made credit for agricultural inputs), and interrogated at every juncture of the investment.

The future of impact investing

The last few years have not been plain sailing for the investment community. The macro-instability wrought by the Covid-19 pandemic and Russia’s invasion of Ukraine have given investors across the globe good reason to pause before putting their hands in their pockets. Higher interest rates have made borrowing more costly across private equity and venture capital in general, and returns that beat soaring inflation are harder to come by. Nevertheless, pressure is growing on investors to not only pay closer attention to environmental and social issues, but to integrate impact measurement into the fabric of their deal-doing. And whilst it is perhaps too early to know whether impact-led deals can consistently generate returns that match investors’ expectations, we must acknowledge the very real possibility that, on the stage of private equity, doing well can be a direct outcome of doing good.  


Eduardo played a key role in the founding of leading Spanish impact investment fund, GAWA Capital Partners. He is also the Co-Founding Partner and Chairman of Samaipata Ventures, a Spanish venture capital firm. As a business angel, Eduardo has helped to launch several companies including MásMóvil (one of the largest Spanish telecommunications operators), Canalmail and Bodaclick. He is currently Chairman of MásMóvil and has been Vice Chairman and CEO of 20 Minutos España (publisher of Spain's leading free newspaper). He is also an advisor and board member at several companies.

Eduardo was previously Senior Partner at Apax Partners, where he headed Spain’s Media group. Before Apax Partners, Eduardo was the COO and CFO for the largest media group in Spain, Grupo Prisa, where, among other responsibilities, he led the expansion of the group in Latin America and the group's IPO process. Eduardo started his career in banking, where he held various responsibilities at the Dresdner Bank and BNP Paribas group, including heading up Banexi in Spain.

He holds a Master of Business Administration (MBA) degree from IESE (Universidad de Navarra) and a BA from Universidad Autónoma de Madrid.

Share this article
© Copyright 2023