$9 Billion To Flow Into Impact Investments In 2013
JANUARY 22, 2013 • THOMAS KOSTIGEN
According to research from J.P Morgan and The Global Impact Investing Network, $9 billion will be committed to impact investments this year. That would represent a 12.5% boost from the $8 billion that flowed into the space in 2012, the research shows.
Impact investments aim to produce a financial return while providing a positive impact through projects such as alleviating poverty, promoting human rights, engendering fair trade, or improving the environment.
The current research, culled from a survey last year of 99 active impact investors, found that most respondents said the financial and impact performance of their investments are in line with expectations. Nearly two-thirds of the sample said they shoot for market rate financial returns on their impact investments.
Half of those surveyed are fund managers who expect to make 10 impact investment transactions this year.
Most of the investments will be made in the food and agriculture sector, according to the survey, with sub-Saharan Africa receiving the largest share of total capital committed (34%). Latin American and U.S. companies will receive the next largest share (32%).
In developed market economies such as the U.S., healthcare companies will receive the most investment dollars.
Most investments (78%) are being made in growth-stage companies, with less than 20% in seed/startups and just over half in venture-stage organizations. Thirty-three percent of investments are headed for bigger and more established private companies, while nearly 10% of investments will be made in publicly traded stock.
Interestingly, 83% of the respondents said they make impact investments via private equity instruments. Conventional wisdom held that private impact investments made in the developing world were largely credit, or debt-driven because of risk and recourse measures.
After private equity, the next largest investment vehicles of choice among survey respondents were private debt (66%) and equity-like debt (44%).
Despite numbers showing a slow-building momentum in the impact investing space, respondents said the top challenges to growth were “lack of appropriate capital across the risk/return spectrum” and “shortage of high quality investment opportunities with track record.”
To help promulgate impact investing, those surveyed said governments can help grease the skids by providing technical assistance, tax credits, guarantees, better regulation, co-investment opportunities and procurements.
Metrics and standards are also important to fuel industry growth. Seventy percent of those surveyed believe standardized investment metrics are key to the development of the impact investing industry.
As more traditional investors consider impact investments (“many” investors, especially among high-net-worth people and family offices, are starting to consider the impact investment market, according to the survey), standards and risk measurements will become increasingly important.
The overall takeaway from the survey is that impact investing has moved past the “fad” stage and is maturing into a more fully realized segment of the financial services industry. With Goldman Sachs, Morgan Stanley, JP Morgan, Credit Suisse and others launching more robust impact investment programs, and with operators such as TriLinc Global advancing in the independent financial advisor market, mainstream funds and program offerings are sure to follow.
That means even more growth in the coming years.