Philanthropy

Impact Investors Expect More AuM; Raise Concerns About "Mission Drift" As Big Players Enter The Fray

Tom Burroughes, Group Editor, May 18, 2017

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Impact investing is one of the strong trends in wealth management, and more money is being put to work in this space. There are some concerns, however, as a global study shows.

The arrival of larger firms into the space known as impact investing raises the risk that money managers will drift away from the core of what this sort of asset management is meant to achieve, a study of the sector shows.

The cautionary note was raised by a survey from the Global Impact Investing Network, a pan-industry group gathering data on the sector and prosletysing about the investment model. More positively, the study, which covers an array of groups including wealth managers and family offices, said investors ntend to boost capital to this style of asset management by 17 per cent this year, reaching $25.9 billion this year, covering 9,557 deals.

The impact investing field has become increasingly visible as a wealth management talking point, tapping into a desire among high net worth individuals to use their wealth to improve the environment, tackle poverty and poor education, and other objectives. The process is, its practitioners argue, not at odds with hard-nosed pursuit of investment returns because investing for "good" equates to smart practice anyway.

GIIN survyed 209 organisations, reporting a total of $114 billion in impact investing assets under management. Survey participants committed a total of $22.1 billion in 7,951 impact investment deals in 2016.

Fund managers raised $11.1 billion in 2016, with plans to raise $18.5 billion in 2017, the report showed.

Investors who responded to the survey reported that returns met or exceeded their expectations in both impact (98 per cent) and financial performance (91 per cent).

Among details of the report, it showed that there have been an "increasing number of large, well-known asset managers and other financial firms entering the impact investing space". In 2015, for example, the world's largest listed asset manager, BlackRock, said it was throwing its weight behind the impact investing space. Goldman Sachs and Bank of America are involved in areas such as social impact bonds; banks including UBS have created impact investing funds.

Mission drift
The arrival of large firms will "help professionalise the market, bring in much-needed capital, and enhance the credibility of impact investing", the report continued, but there is the risk that arrival of prominent players will cause "mission drift" - in other words, that the original idealism of impact investing will be undermined in a chase for returns.

Investors reported progress on a number of factors, including an increasing abundance of professionals with relevant skillsets (90 per cent noted progress) and greater availability of market research and data on products and performance (89 per cent reported progress).

About 26 per cent of respondents track their impact investment performance to the United Nations Sustainable Development Goals and another 34 per cent plan to do so in the near future. The SDGs have served as a rallying cry for many impact investors to link their investments to a broader international initiative.

Respondents to the study measure the social and/or environmental performance of their impact investments, using a mix of proprietary metrics, qualitative information, IRIS-aligned metrics, and other tools and frameworks.

The top sectors to which respondents allocated capital were housing, energy, and microfinance. Top geographies of investment were the US & Canada, Europe, sub-Saharan Africa, and Latin America & the Caribbean.

While two out of three respondents target risk-adjusted, market rates of return, there was broad agreement among respondents that below-market-rate capital plays a valuable role in impact investing. Roughly four out of five respondents agreed that this type of capital has several benefits, including its ability to mitigate risk of investments to attract new investors, act as a bridge between philanthropy and market-rate capital, and capitalize opportunities that may never lend themselves to risk-adjusted returns.

 

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