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A private equity fund usually consists of a partnership with investors who are limited partners in the Fund, which is controlled by a general partner. Limited partners commit to provide funding when the general partner has identified an opportunity for investment, such as acquiring a controlling stake of a company. A Fund will typically make separate investments in several companies or projects over the life of the partnership. Investee companies or projects can encompass microfinance institutions, small and medium enterprises, and corporations and large-scale projects.

Because such transactions make the private equity fund a partial or full owner of an investee company, the Fund is directly exposed to, and thus also liable for, the environmental and social risks of the investee company. Potential environmental and social risks may reduce an investee company’s market value and affect the timing of the Fund’s exit from the company. A private equity fund’s ownership position in an investee company offers the Fund a unique position to promote sound environmental and social management of the investee company’s operations and also identify environmental business opportunities that would enhance an investee company’s financial viability and increase its market value. Unlike many other financial institutions, a private equity fund can directly profit from the upside potential of good environmental and social management. If the environmental and social risks of the investee companies are well managed and the opportunities deriving from sustainability are maximized, the Fund’s exit opportunities can be improved substantially.

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