According to New York based, Global Impact Investing Network (GIIN), a not-for-profit group that works to promote impact investments, by investing in companies which are involved in socially and environmentally responsible practices and projects, impact investment helps developing and emerging countries address global challenges of climate change, extreme poverty, weak healthcare and educational systems. (1)
The GIIN’s report on Impact Investing Trends: Evidence of a Growing Industry, based on data from 61 investors over a three-year period from 2013 – 2015, found impact investment assets under management grew by 18% per annum. Additionally, the GIIN’s Annual Impact Investor Survey of 2017 based on data on aggregate impact investing of 208 showed a total of USD 114 Billion in impact assets.
According to businesswire.com, this market is expected to grow from an estimated value of $135 Billion in 2015 to $307 Billion by 2020, at a compound annual growth rate of 17.86% from 2015 to 2020.
As seen in the graph below, the survey also shows that portfolio performance overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return, in investments spanning emerging markets, developed markets and the market as a whole.
Selected findings of the GIIN report show the following:
Half of respondents target both social and environmental impact objectives, 41% target primarily social impact objectives, and 9% target primarily environmental impact objectives. • Fund managers see significant interest from most investor types, especially foundations, family offices, and banks, and growing interest from sovereign wealth funds, pension funds, and insurance companies.
- Only roughly a year after the launch of the UN Sustainable Development Goals (SDGs), 26% of respondents track some or all of their impact investments with respect to the SDGs, and another third plan to in the near future.
- Most respondents believe below-market-rate-seeking capital plays many important roles in the market, including directing capital to strategies that do not lend themselves to market-rate returns, achieving different kinds of impact, and acting as a bridge between philanthropy and market-rate capital.
- Most respondents believe the entry of large-scale firms into impact investing will professionalize the market and bring in much-needed capital, but most also believe this trend could pose a risk of mission drift or impact dilution.
- The bulk of sample AUM is allocated to sectors that meet basic needs, such as housing, energy, financial services, and food and agriculture.
Socially-conscious investing climate as a key force in Impact Investing
According to the GIIN’s Annual impact investor Survey, client demand plays a key role in the increasing demand for impact investment opportunities as social responsibility becomes an important part of good business practice.
A good example of this is seen in the Asia-Pacific private equity deal market which reached new heights in 2017 with a surge in mega deals (1 billion or more) on back of increasing investor confidence in generating high returns in the region: https://cnb.cx/2IyG0z9
The Asia-Pacific PE deal market experienced a record year in 2017 as investors grew increasingly confident in deploying large pockets of capital and getting their money back. According to Bain & Company’s annual Asia Pacific Private Equity Report, deal value soared to $159 billion last year, up 41 percent over 2016 and 19 percent higher than the previous all-time high of $133 billion in 2015. A surge of megadeals ($1 billion or more) and pooled investments helped boost deal value with global general partners (GPs) taking a large share, especially at the top end in terms of deal size. Exit value of $115 billion marked the second-best year on record, only slightly below the 2014 peak; exit count hit a new high at 710. Fundraising rose 6 percent to $66 billion, above the five-year historical average, boosted by the largest ever buyout fund raised in Asia-Pacific.
A combination of forces propelled the market to new heights, including an improved macroeconomic environment and mounting pressure to invest huge reserves of committed, unspent capital.
“The Asia-Pacific private equity market showed signs of maturing and entering a new phase of growth powered by two key forces,” said Suvir Varma, head of Bain & Company’s Private Equity practice in Asia-Pacific. “Investors grew more confident in the region as the macro climate improved and company owners increasingly accepted private equity funding. As a result, major players, including global and regional PE firms and institutional investors, stepped up their activity in Asia-Pacific last year, accelerating the flow of large deals.” (2)
Showing a change of heart in the role of private equity, PE deals set a record at 17 percent of Asia-Pacific M&A transactions, while public-to-private deals more than doubled, setting a new record of $27 billion.
The Future of Impact Investing
Impact investing appeals largely to younger generations, such as millennials, who want to give back to society, so this trend is likely to expand as these investors gain more influence in the market. By impact investing, individuals or entities essentially state that they support the message and the mission of the company in which they’re investing, and they have a stake in the company’s welfare. As more people realize the social and financial benefits of impact investing, more companies will engage in social responsibility.
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