I have faith in humankind. Despite the perils that beset us, we will be here ten thousand years from now. And longer. The survival of the species is not the issue here. The path we take over the next few hundred years is.

The path of civilisation is not linear. The past hundred years has seen an unprecedented acceleration in development and growth. It has seen the benefits accrue to all, not evenly, but enough to hold the fabric of society together. As we advance even further, we cannot guarantee that this will be the case. But advance we will. Such is human ingenuity. What we are less adept at, is sharing the fruits of our labour.

Today we find a planet struggling with a fever. We find a species struggling with itself. Nations are divided internally and against one another. Our ingenuity seems almost to exacerbate rather than to mitigate. Our greatest minds and our greatest powers choose to divide instead of unite. Meanwhile the planet burns, floods and parches.

The world will not end nor will we be extinct. We haven’t the power to end this planet or ourselves. But we can make the next thousand years hell. The mission before us is to minimise this period of retrenchment and to mitigate its worst effects. The carrying capacity of the planet might fall to 2 billion, we need to maintain it at 8 billion. A period of strife might last a millennium; we need to shrink it to a century. This is the mission.

To do this, we must envisage all possible outcomes post the period of retrenchment. Humanity will need this information for continuity. Also, for continuity, humanity will need a record of all that has gone before, a history as true as is possible given the subjective nature of collective memory. It will need a record of human ingenuity, so that it can rebuild, and a record of human folly, so it can learn. Information is the life blood of society and social organisation and thus information must be preserved.

A core of humanity and morality needs to be preserved. It must survive the instinct to give in to fear. We need to preserve our empathy. Altruism is wonderful but often too ambitious a goal. Understanding ourselves and that, unique as we maybe, we are also each of us, the same.

Investment management is not just a job, its a craft. Practitioners of the craft are not just motivated by money but also by the autonomy they are afforded. You cannot influence the manager with carrot or stick. You might appeal to their professional respect as a fellow craft. Impose your will and they will either flee or they become sycophants.

Semi liquid funds have become a bit of a thing in the past few years. They serve a purpose.

1. They offer a liquid form of accessing an illiquid asset class.
2. They reduce cash drag as they are usually already partially or substantially deployed.
3. They typically feature lower minimum investment amounts.
4. Continuous compounding. Without and end date, they don’t return capital and so continuously compound returns.
5. Operational simplicity. They offer investors who can’t manage a private markets investment program a convenient means to invest without managing commitments, capital calls, and redepployment.

There are some drawbacks:

1. The liquidity they offer is conditional and somewhat forced. Funds usually feature a ‘gate’. They will only satisfy redemptions up to a limited percentage of total assets at a time.
2. Valuations are not well defined and face a lag.
3. Performance drag from liquid assets held to manage liquidity.

There are more serious complications and risks:

1. The investment manager should always acquire and manage assets firstly with the exit in mind. The perpetual structure does not incentivise this.
2. The liquidity is not useful. If the fund faces significant redemptions, it will have to gate, that is, limit redemptions. When a gate is imposed, it incentivises all investors to redeem.
3. In an LP has troubled investments elsewhere, they may likely seek to redeem from semi liquid funds. This could trigger gating. There is therefore contagion risk.

Semi liquid funds have grown in AUM from circa US$120 billion in 2020 to over US$600 billion in 2025. There is an interesting dynamic at the heart of this phenomenon. Before 2022, LPs reinvested fund distributions in subsequent funds allowing GPs to purchase more new businesses in a positive feedback cycle. As interest rates surged in 2022, M&A froze and exits fell 60% from their 2021 peak. LPs weren’t getting cash back and therefore reduced their commitments to follow on funds. Institutional LPs capacity to allocate became seriously impaired. For GPs, a new source of capital had to be found: private wealth investors. These investors, however, differ from insitutional LPs in that they require liquidity or the illusion thereof. Enter the semi liquid, perpetual fund.

To invest in semi liquid funds, the investor has to avoid being too precise about the entry and exit valuations at the redemption dates. The investor has to accept that often liquidity is being provided by new investors buying into the fund. There is a technical term for this type of scheme, beginning with the letter ‘P’. Investors must have a short memory not extending before 2008 when an entire cohort of liquid funds were found to have hoarded up private credit (they are not that new after all), or private equity, and had to gate or suspend redemptions (thus a semi solid fund?).

The liberal democratic, free market economy has generated significant wealth for the world. However, it also appears to tend toward an unequal distribution of that wealth. One plausible reason lies in the unequal scalability of inputs to production. Labour is weakly scalable, capital more so, and intellectual capital close to limitlessly scalable. Ownership of capital and intellectual capital, combined with the ability to bequeath such assets across generations, concentrates claims on future income and increases inequality over time.

Inequality beyond a certain threshold is undesirable, if not on social justice grounds, then on efficiency grounds. It unevenly weights the consumption and allocative votes of economic agents, leading to less than optimal outcomes. It also blunts economic analysis and policy formulation. Many economic models implicitly assume a zero Gini world by treating agents as identical, which is analytically convenient but descriptively false. In reality, inequality leads to over saving, as marginal propensities to consume decline with wealth. Over saving depresses the cost of capital and inflates the value of assets relative to labour, reinforcing the underlying dynamic. This helps explain why capital can feel abundant and scarce at the same time.

The purpose of financial capital, hereafter simply capital, is to finance economic activity, whether consumption or investment. What, then, is the purpose of impact capital? The distinction can only arise if impact capital funds things that broad or conventional capital will not fund. Since funding is only relevant to activities that people or societies want, impact investing may be sharpened to: funding things people want but do not want to fund.

Why might people not want to fund something they nonetheless want? The simplest answer is that they do not expect to obtain a reasonable return on conventional terms. This may be because the good in question is a public good. Everyone wants it, but no one will pay for it. Once supplied, no one can be excluded from consuming it, and consumption does not exhaust it. Someone else is therefore always expected to pay, which in practice often means no one does.

Alternatively, the activity may be privately supplied but subject to extreme uncertainty. Expected returns may be high, but the range of outcomes may be wide, or the time to exit long and indeterminate. Such projects fall outside the risk tolerance or time horizons of conventional capital, even if their social value is large. Early stage climate technologies provide a familiar example. Many promise enormous long term social benefits, but face uncertain regulatory environments, long development cycles, and unclear exit paths. As a result, they are often starved of capital precisely when additional investment would matter most.

Impact capital, then, exists to resolve capital allocation failures. If a project would have been funded anyway, at scale, on similar terms, without impact capital, then impact capital is not needed. High return, easily funded projects fail several tests of impact. Capital is not scarce, risk is not mispriced, and time horizons are acceptable. In such cases, impact capital has little or no marginal value. Its use crowds out conventional capital, risks subsidising returns that do not require subsidy, and misallocates scarce impact capacity. This is where much of what passes for impact investing goes wrong.

The contribution of impact capital can be understood in terms of an efficient frontier. Conventional capital operates along a frontier that maximises financial return for a given level of risk. Impact capital is justified only where it shifts that frontier, where, for a given level of financial return, it produces greater social value, or where, for a given level of social value, it accepts lower returns, greater uncertainty, or longer duration. Impact is therefore not defined by intent alone, but by the extent to which capital is deployed beyond what markets would otherwise provide.

Why should impact capital fund public goods and risky endeavours in particular? Risk aversion declines as wealth increases. An individual’s first million is risk averse, the next ten million less so, the next hundred million less still. Those with surplus capital possess a greater capacity to absorb volatility, illiquidity, delayed payoffs, and partial failure. If progressive tax systems are justified in part by diminishing marginal utility of wealth, a parallel justification exists for progressive risk bearing. Those with greater wealth are less harmed by failure and uniquely positioned to fund projects whose benefits are diffuse, long dated, or imperfectly captured by private returns. Put more bluntly, they can afford to be patient or bear losses when others cannot.

Impact capital should therefore be understood not as a substitute for conventional capital, nor as a moral overlay on profitable investing, but as a complement. It is capital deployed where markets systematically underprovide, and withdrawn as markets mature. Its purpose is not to maximise returns with a conscience, but to expand the set in which socially valuable activity can occur.

Geopolitics:

A belligerent US is a serious complication to the outlook. The objectives of the Trump administration are a bit unclear as their economic and social aims may not be compatible with current international norms. Conquest for the sake of conquest is a risk we have to entertain. Europe is in the crosshairs and much uncertainty surrounds its response and how the US might respond. Russia and China have been silent thus far, pursuing their own territorial agendas, but this might change and could compound the complexity. 

Domestic US politics will come into focus quickly as the composition of Congress will have implications for the Trump agenda. Mid terms happen end of this year. Already there is a creeping sense of domestic oppression in the US and this could escalate. The White House needs domestic support for its international expansionist agenda and quite how it achieves this will be interesting. 

Economics:

An equally important concern is sovereign debt levels. While tariffs may have improved the US fiscal position in 2025, deficits are expected to increase steadily from 2028 – 2035. Pensions, welfare, healthcare and defence requirements are likely to pressure budgets in most major economies across the world. 

Fiscal spending may be constrained by borrowing costs. Monetary policy may be constrained by inflation. On current general conditions, central banks can be expected at some stage to resume buying government bonds, unless inflation rises significantly above target. 

Markets and investment strategy:

Asset values can be supported if fiscal and monetary policy are coordinated in accommodation mode. If nothing interrupts fiscal expansion and monetary accommodation, asset valuations may rest at a new, higher, mean. If not, then expected returns must decline. The threats to fiscal indiscipline or debt monetization will be rising inflation, interest rates and exchange rate volatility. 

Markets are in a state of constant uncertainty, however, current levels of uncertainty are acute. Market risk is high and return per unit risk is poor. Liquidity risk is high given that flexibility is valuable, thus liquidity premia per unit risk is also poor. Complexity risk, which is assumed when investing in many alternative investments like relative value and arbitrage strategies is high given that historical relationships may become dislocated. 

Valuable qualities in any portfolio and strategy include stability of capital, liquidity, simplicity and flexibility. All things being equal, in credit, seek to be in liquid markets and senior in claim. In equities, balance between value and growth and avoid over allocation to any particular country or sector. Market cap weighted index ETFs are poorly diversified and should be de-emphasised. Seek a globally diversified, equally weighted equity portfolio to express the equity view. 

Generally, in an asset repricing, crystallise losses and increase risk. Sell senior buy sub. Sell value buy growth. Sell liquid buy less liquid. This will require discipline and preparation since it will involve acting against most human emotional instincts. Asset classes need to be identified buy and sell levels identified. 

Scenarios coming out of uncertainty should be built to guide the investment strategy post repricing.