In the spotlight – what’s your opinion?
An in-depth analysis of investor perspectives and over 2,200 transactions
After the research report titled Impact Investments: An Emerging Asset Class published in 2010, the Global Impact Investing Network (GIIN) and J.P. Morgan partnered on an expanded survey, capturing data on over 2,200 private transactions and interviewing 52 impact investing organizations. The survey was conducted in two parts and examined investor perceptions of the industry as well as the performance of their investments.
The investor perception survey showed that the majority (52) of them are optimistic about the potential growth of the impact investing market describing it to be “in its infancy and growing”. They plan to invest a total of USD 3.8 bn in the following year, out of which impact investments still constitute a small percentage. However, investors believe that impact investments will play an increasing role in their portfolios: 10% of total investments for HNWI and 5% for institutional investors in the next ten years.
Nonetheless, as the industry is in an early stage of development, it still has to face many challenges: investors rank as the most critical challenge the lack of “track record of successful investments” as well as illiquidity and uncertainty of financial return. The reason why investors, despite those risks, display a cautious optimism could be due to recent positive market developments, such as increasing government support – for example the launch of investment funds and the seeding of intermediaries to catalyse private investment – and the improvement of infrastructure to facilitate impact measurement and market transparency.
The second part of the survey focused on the philosophy and the performance of the investments, analysing the approach investors take to making investments with a dual purpose, meaning financial return and achieving social and/or environmental impact. The main outcomes show that 62% of impact investors would be ready to sacrifice financial return for greater impact. 60% think a trade-off between financial societal return is not necessary. The analysis of the return expectations showed variations, depending on the different nature of each investment. In general, the surveyed impact investors have relatively aggressive return expectations: an average of 19% for equity impact investments. It is interesting to see that for-profits often have more competitive return expectations that non-profits who are usually expect concessionary returns. Results show that most of the investments are being made with hard currency, and mainly in the form of debt and equity. Regional distribution shows market activity in both developed and emerging markets.
Regarding geographic focus, the respondents focus much of their investment on the United States (51%) in money terms, and only 1% in Western Europe. In terms of sector focus, the top sectors for the impact investors in the study are microfinance (37%) and housing (21%) in money terms. Only 5% of respondents focus on health and education. This geographic and sector focus contrasts sharply with the findings from EVPA’s recent survey. For European Venture Philanthropy organisations a majority (65%) of the investments are made in Europe, and the top social sectors are health (27%) and education (21%).