Impact investing grew significantly over the past three years, results released this month by the Global Impact Investing Network show.
GIIN found that both overall assets under management and capital raised by fund managers increased at a compound annual growth rate of 18% between 2013 and 2015.
Assets increased from $25.4 billion in 2013 to $35.5 billion in 2015, and capital raised grew from $1.7 billion to $2.3 billion.
The report was based on data from 62 impact investors that have completed GIIN’s annual impact investor survey each year from 2014 to 2016, answering questions regarding their activities for the year prior to data collection, plans for the following year and general perceptions of broader market trends and topics.
Approximately 80% of respondents are based in developed markets, with 56% identifying as fund managers and 20% as foundations. Roughly half the sample are market-rate investors — with some slight fluctuations from year-to-year — and the rest were below-market investors.
Respondents committed a total of $7.1 billion to 3,332 deals in 2013, $9.2 billion to 3,726 deals in 2014 and $9.1 billion to 3,096 deals in 2015.
Between 85% and 95% of respondents each year reported that financial performance was at or above their expectations, and 98% said they met or exceeded their impact expectations.
Respondents ranked “business model execution and management risk” as the chief risk to impact investing portfolios considered.
Certain key geographies, sectors and instruments were particularly common among impact investors surveyed. Some 60% of assets under management were in emerging markets, and approximately 70% were allocated through private debt and private equity each year.
The three sectors that collectively accounted for the majority of AUM each year were microfinance, other financial services and energy.
GIIN said the industry continued to progress across various indicators of market growth, but consistent challenges remained. Respondents reported significant progress in terms of the number of intermediaries with successful track records, levels of government support for the market and the availability of exit options.
At the same time, they reported “lack of appropriate capital across the risk/return spectrum” and “shortage of high-quality investment opportunities with track record” as the top challenges facing the industry.
“The report illustrates that impact investing is a powerful movement driven by investors of all types who are effectively putting their capital towards solutions to issues in areas like conservation, education and affordable housing,” GIIN’s co-founder and chief executive, Amit Bouri, said in a statement.
“The positive trends support that investors are increasingly bullish about the use of capital to address social and environmental challenges, and we are confident that this trend will continue.”
--- Check out Investing in ESG, SRI or Impact Funds? Do You Know the Difference? on ThinkAdvisor.