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Impact Investing Helps Advisors Stay Ahead Of The Curve – FA

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Financial advisors take note: your impact investing offerings will soon define whether you are ahead of the curve or whether you will be trying to catch up in years to come. JP Morgan’s recent Perspectives on Progress report, released in partnership with the Global Impact Investing Network (GIIN), found that impact investing among the fund managers interviewed will grow 12.5 percent to reach $9 billion in 2013.

But it’s just the sector’s expected growth that’s important, it’s how the shifting mindset of clients is already changing the landscape for financial advisors.

Last year’s Gateways to Impact survey of financial advisors found that nearly half of them already have clients engaged in sustainable investing, while 72% of advisors expressed interest in recommending sustainable investments to their clients.

“We’ve seen firsthand the growing interest in investments that have both financial and social ROI,” says Kathy Leonard, a financial advisor with UBS Financial Services and head of the Boulder, Colo.-based Leonard Social Investment Group,. “Impact investing has emerged as the dominant global trend that will drive future financial market opportunities.”

While the term “impact investing” is relatively new, it’s based on more than 40 years of evolution in socially responsible investing. Impact investments are investments made into organizations and funds that generate measurable social and environmental impact as well as financial returns.

Going beyond the definition, impact investing is about investor intention to create real and measurable positive outcomes for the world. As individuals seek “blended value” investment options that combine economic and social value creation, and as fund managers develop track records that support the claim of a range of positive outcomes including––but not limited to––market rate returns, impact investing is poised to attract significant capital going forward.

To successfully direct a portfolio of investments to achieve its full potential, investors must do two things:

• First, they and their wealth managers must reconceive the overall investment strategy to allow for consideration of more than just financial performance.

• Second, investors need a more comprehensive understanding of, and access to, the array of investment instruments available to them to construct their portfolios.

For financial advisors who are ready to incorporate impact investing, here are some tactical ways to get started:

Become more knowledgeable about the field. Several resources are readily available, including:

• The Global Impact Investing Network (GIIN) is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. Their website includes an online impact investing resource center that features research, news clippings, events, useful links, and GIIN publications about impact investing.

• The ImpactAssets 50 is a screened roster of private debt and equity fund managers offering impact investment strategies across a variety of asset classes, issue areas, and geographic areas. The IA 50 is available online at and focuses on filtering for track record and commitment to impact investing at the firm level and is a starting place for investors and their advisors who are looking for credible firms across thematic areas of impact investing.

• Impact Investing: Transforming How We Make Money While Making a Difference, co-authored by Jed Emerson and Antony Bugg-Levine, is the first book on the topic of impact investing and charts the growth of the field while explaining the “blended value” proposition for investors, funders, and entrepreneurs.

Know what is available to your clients:

• Find out if your firm offers sustainable investment products. These may be ESG (environmental, social, governance) or socially responsible mutual funds, community development bond funds, or Calvert Foundation’s Community Investment Note.

• Identify a community development bank in your area. Using these institutions for basic checking and savings can be an easy first step to put a client’s money to work for positive local impact.

• For clients with philanthropic capacity, there are donor-advised funds such as ImpactAssets’ Giving Fund that specialize in impact investing and offer a range of private debt and equity impact investment options. These funds interface directly with financial advisors, allowing them to maintain management of assets.

• Talk to peers who have been helping clients incorporate impact investing into their portfolios and learn from their experiences.

Talk with your clients:

• By asking your clients about their interests and overall portfolio objectives you can determine if impact investing is a good fit and if so, what kinds of products will align with their interests.

• Discuss your client’s comfort with liquidity or lack thereof, intended impact area and/or geographic focus, and their expected risk and return to help narrow the field of appropriate impact investments.

Rather than investing capital for simple financial returns, an investor engaged in pursuit of multiple returns will need to be directly involved in working with his or her asset managers to ensure that their portfolio reflects the desired impact strategies. And asset managers and advisors will increasingly provide leadership to their clients in constructing solutions that meet this appetite.

Impact investment approaches are gaining momentum and will be the baseline for the next generation of investors. This year that will see impact investing expand beyond high-net-worth investors and have a greater presence among mainstream retail investors.

Financial advisors who are receptive and informed when clients seek a broader definition of ROI will be positioned to take advantage of this growing market opportunity and will go a long way in ‘future proofing’ their client relationships.


Tim Freundlich is president of ImpactAssets, a nonprofit financial services firm that increases the flow of capital into investments that deliver financial, social and environmental returns. Its impact investment strategies, donor-advised fund and knowledge resources provide a dynamic platform for wealth managers and the clients they serve to advance social or environmental change through investment. ImpactAssets seeks to shed light on—and drive capital to—the field’s most promising organizations and initiatives, helping to build the field of impact investing.

$9 Billion To Flow Into Impact Investments In 2013

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JANUARY 22, 2013 • 

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.