Impact investing has seen an influx of capital from retail investors, according to a new study, which an Australian fund manager says is indicating a shift away from the sector being dominated by high-net-worth individuals.
Global Impact Investing Network’s ninth Annual Impact Investor Survey found investors in the space have forecast strong growth for the sector, with organisations planning to inject more than $53.8 billion this year, 13 per cent up on the volume of capital invested year-on-year.
The report was based on a poll of 266 global impact investors.
Nearly two-thirds of participants in the survey were fund managers, while the rest were a variety of other organisation types including banks/financial institutions, foundations and family offices. Collectively, they manage around $347.5 billion in impact investing assets.
Impact investors are looking to back more than 15,000 investments this year, projecting 14 per cent growth in the number of deals invested year-on-year and 13 per cent in the volume of capital invested.
During 2018, they were reported to invest more than $47.9 billion into more than 13,000 investments.
Jeremy Burke, head of product & strategy at one of the survey’s respondents, Impact Investment Group, said there is an opportunity for wealth managers in Australia where “clients can connect the value to their money really clearly”.
“The one factor that stuck out to us that’s particularly pertinent to our business is just how much impact investing was really drawing investors across a broad investor range,” Mr Burke said.
“We’re starting to see that continual growth in institutions, high-net-worth individuals have always been active in the space. I think in Australia there are huge opportunities for foundations to embrace impact investing as a core approach to how they do their asset allocation.”
The greatest increase in source of capital for respondents was observed from banks and diversified financial institutions, which rose at a rate of 24 per cent per annum.
Fund managers in the space also saw a significant rise of capital from retail investors, which grew by 21 per cent per year as well as family offices and high-net-wealth individuals by 16 per cent per year.
“Within the report you start to see retail is starting to grow and the democratisation of impact investing is, I think, important for those people in the sector but also how we deal with our social licence to operate,” Mr Burke said.
“It can’t just be done sorely for very wealthy people.”
The survey found that for 85 per cent of respondents, client demand seems to be a “somewhat” or “very important” motivation for making impact investments, reflecting that demand is driving growth in the industry.
Around 70 per cent of fund managers involved in the survey said clients’ interest in aligning investments with their values was “very significant” as a driver for demand, while 29 per cent ranked it as “somewhat significant”. It was the top factor in generating demand for impact investing.
Fund managers also commented on the challenges they face in raising capital from investors, with the top two being demonstrating a financial track record and reconciling concerns around exit options and liquidity.
Nine out of 10 impact investors reported performance for their investments were in line with both their financial and impact expectations.
The largest challenge for the sector was reported to be having a lack of appropriate capital across the risk/return spectrum.
Around two-thirds of respondents in the survey said they primarily target market-rate returns (66 per cent).
The majority of international impact investors were found to target both social and environmental impact objectives, while 36 per cent target only social outcomes and 7 per cent chase environmental results.
Across sectors, most impact investors allocated the greatest share of assets to energy (15 per cent), followed by microfinance (13 per cent) and other financial services (11 per cent).
Governments are also significant players in the space, the report noted, whether they directly make impact investments themselves or develop regulatory frameworks and policies to encourage private impact investment, or facilitate the founding of enterprises.
In Australia, the most recent developments were seen from the NSW government’s Office of Social Impact Investment (OSII), which will be deploying $20 million over four years to finance strategies to prevent people exiting government services such as public housing from becoming homeless.
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