Institutional investors expect to commit 19% more capital to impact investments in 2014 than they did last year, according to a recent survey by J.P. Morgan and the Global Impact Investing Network.
Survey participants — 125 fund managers, banks, foundations development finance institutions and pension funds around the world — expected to allocate $12.7 billion this year, and anticipated a 31% increase in the number of deals.
Their fundraising target in 2014 is $4.5 billion, compared with a $2.8 billion target last year.
The survey, the fourth in a series, encompassed the largest-ever respondent group, up 26% this year from 2013, J.P. Morgan and GIIN said in a statement.
“From the results, we see the rise of a vibrant impact investing marketplace, where investors are targeting a wide variety of social, environmental and financial objectives and finding themselves satisfied with the results,” Yasemin Saltuk, research director at J.P. Morgan Social Finance, said in the statement.
“As collaboration between investors, governments and other key participants continues in 2014, we remain optimistic about the growth and development of the practice.”
The survey found that respondents collectively managed $46 billion in impact investments, 70% of which was invested in emerging markets and 30% in developed markets.
Development finance institutions managed 42% of total assets, and fund managers 34% of total assets.
Microfinance and other financial services each accounted for 21% of respondents’ impact investment assets, followed by energy at 11% and housing at 8%.
Allocations took place primarily in private markets, with 44% of assets currently invested through private debt and 24% through private equity.
More investors said they planned to increase the percentage of their portfolios invested in sub-Saharan Africa, Asia and North America, relative to other regions.
In addition, more investors planned to increase the percentage of their portfolios allocated to food and agriculture, health care and financial services (excluding microfinance).
The largest number of investors planned to reduce the percentage of their portfolios allocated to microfinance, relative to other sectors.
Investor Motivation and Measurement
Ninety-one percent of investors surveyed reported financial returns above or in line with their expectations, and 99% said the same about social and/or environmental impact.
More than half of investors acknowledged they were seeking competitive financial returns from their impact investment commitments.
Investors said they were chiefly motivated to make impact investments by responsibility, efficiency and client demand.
Shortage of quality deals and lack of appropriate capital remained their top challenges, they reported.
According to the survey, 95% of respondents reported that they used metrics to measure the social and/or environmental impact of their investments. And more than two-thirds said standardized impact metrics were important to the growth of impact investing.