State-Owned LPs as Catalysts for Impact Investing

GÁBOR DÉNES, Chief Executive Officer of MFB Invest will also be present as a guest and as an institutional empowerement of the CEE4Impact Day, taking place at the Museum of Ethnography, Budapest, this Thursday, 9th October!

State-Owned LPs Must Embrace Impact Investing in Startups and Scaleups and serve as catalysts for development

Nowadays the traditional focus on financial return alone for institutional investors is giving way to a more holistic approach. Impact investing has been around for almost two decades and luckily more and more financial agents recognize its great possibility to secure long-term success. For MFB Invest – supervised by the National Capital Holding and the Hungarian Development Bank - as a state-owned LP, the allocation of capital to impact-focused VC and PE funds is not just a socially responsible choice—it's a strategic iniciative to drive national priorities and contribute to a sustainable economic growth.

Our motivation to invest in impact startups and scaleups goes far beyond a simple portfolio diversification strategy. We aim to derisk emerging markets and sectors and act as a cornerstone LP in early-stage impact funding. By doing so we provide proof of financial viability for an asset class that is often overlooked by purely commercial investors. Our capital can be considered a catalyst to attract larger pools of private, philanthropic, and institutional capital thus creating a sustainable private market for impact ventures and to ensure the development of geographically uderserved regions while aligning with the sustainability goals of EU or UN.

For an LP the success of its impact strategy hinges mostly on the selection of its GPs. The chosen GP must demonstrate intentionality—a deep and unwavering commitment to generating measurable social or environmental benefit. Diligence must critically evaluate the fund's theory of change to understand how their investment strategy will achieve the impact goals. The LPs need to answer a series of questions: how do they measure impact? Is it embedded in the business model or in the line of service? How difficult will it be to balance between financial and impact objectives?

Naturally, beyond a strong financial track record the GP team must possess impact-related skills and qualifications. They should have relevant sectoral knowledge and experience in the target area, should commit to the diversification of its portfolio and understand that sometimes the carried interest is tied to the achievement of measurable impact outcomes.

Co-investment in this sector should also not be neglected. For state-owned investors operating in Europe, partnering with the European Investment Fund (EIF) offers a unique strategic advantage. With a long history of supporting innovative companies and a dedicated focus on impact and social entrepreneurship they are the top player to co-invest with. Their access to top-tier fund managers and enhanced due diligance methods significantly mitigates the risk of the LP partner while providing a developed framework for quantifying impact metrics and facilitating monitoring and reporting processes.

In summary, for a state-owned LP, impact investing is the most effective way to deploy capital that achieves a dual mandate: generating competitive financial returns while directly and measurably addressing national economic and social challenges. Success lies in a disciplined approach, a truly sustainable and impactful portfolio and the real commitment of all parties involved in the process.