Inside the LP mindset: why funds get turned down

For fund managers seeking capital from LPs, understanding why funds are declined is crucial for refining their approach and improving their investment proposition. While various factors influence LP decisions, a pattern emerges in common reasons for rejections.  

Based on insights from Impact Europe’s LP Office Hours sessions with Miki Yokoyama (Managing Director & Partner, Aurum Impact) and Christian Polman (Impact investor, Polman Family Office), most funds are declined based on four key factors. Understanding the GIST — Geography, Impact, Strategy and Team — can help fund managers anticipate concerns and strengthen their proposals.

G for Geography

LPs evaluate whether they have expertise or appetite for a particular geographic market. Common rejection reasons include:

• Limited market knowledge: LPs prefer markets where they understand local dynamics
• Perceived risk: some geographies may be deemed too risky based on political, economic or regulatory factors

As Christian Polman explained, “Our portfolio is global, but very heavily weighted towards Europe and the US — aligned with typical market caps and exposures.” While that remains the core focus, he noted growing personal interest in expanding geographically: “There are amazing opportunities in emerging markets... and we’re actively considering what we can do from that perspective.”

I for Impact

For impact-focused LPs, the depth and credibility of a fund’s impact approach are paramount. Common concerns include:

• Impact definition and objectives: a lack of clarity or alignment in how the fund defines and measures impact
• Integration of impact frameworks: weak integration of impact measurement into the investment process
• SFDR & regulatory alignment: compliance with frameworks like the Sustainable Finance Disclosure Regulation (SFDR)
• Portfolio composition: presence of non-impact companies in the fund’s portfolio

As Miki Yokoyama from Aurum Impact emphasised: “Many people say, ‘we have impact’, but impact investing is a clear category — it means contributing to measurable social and environmental challenges.” She added that at Aurum they “love to see a theory of change,” and value “a thesis-driven approach to selecting focus areas and industries.” On SFDR, she noted: “We don’t force anyone to have Article 9 classification, but we would prefer it.”

S for Strategy

A fund’s strategy needs to be clearly differentiated and aligned with the LP’s investment thesis. Concerns often arise in:

• Investment strategy relevance: Does the fund align with the LP’s focus areas?
• Differentiation & unique selling proposition: If the fund does not offer a unique edge, LPs may opt for more established players

Aurum’s team highlighted this point repeatedly: “What we see oftentimes is that it’s quite difficult to find a real USP across all the funds... many say ‘we’re pre-seed, we have a big network, and we focus on X sector’, but 40 other funds say the same.” Miki stressed: “We’re looking for something that makes you stand out in this mass of funds that all promise very similar things at the moment.”

T for Team

A strong, experienced and cohesive team is critical for LPs. Red flags include:

• Limited relevant experience: LPs look for a team with a proven track record in executing the proposed investment strategy
• GP complementarity: a well-rounded team with diverse skills and perspectives is preferred
• Impact intentionality: a genuine commitment to impact investing rather than a secondary consideration
• Diversity & inclusion: some LPs prioritise gender and other forms of diversity in fund leadership
• Relationship-building with LPs: a lack of trust or alignment in values can be a deal-breaker

“Oftentimes we weren’t quite convinced of the experience that was relevant to the strategy, and also the intentionality of the GPs,” said Miki. “We like to see more diversity... because we believe it makes better investment decisions, drives better performance, and team dynamics.”  

Christian Polman also highlighted values alignment and ethics as key: “We believe the best source of impact is strong ethical principles... we work with businesses where the founders have a very strong ethical framework.”

Understanding the GIST behind LP decision-making allows fund managers to fine-tune their positioning, build stronger relationships and increase their chances of securing commitments. By addressing these key areas — impact credibility, team experience, strategy differentiation and geographic focus — fund managers can improve their appeal and navigate the complex fundraising landscape more effectively.

Looking to strengthen your impact proposition and connect with like-minded LPs? Learn how membership can support your journey! 

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We are hosting the third edition of our exclusive LP Office Hours series on 29 April — this time featuring the European Investment Fund (EIF)! Register here