Last year, 146 of the world’s largest impact investors reported $10.6 billion in commitments to impact investments, with plans to commit 16% more in 2015, according to a new report from the Global Impact Investing Network and JPMorgan Chase & Co.
Survey participants, including fund managers, banks, development finance institutions, foundations and pension funds, collectively managed $60 billion in impact investment assets, 35% of which was proprietary capital and 65% managed on behalf of clients.
Each participant in the study either managed at least $10 million in impact assets or had committed capital to at least five different impact transactions. The survey did not include individual investors.
Asset Allocations and Performance
According to the report, investments directly into companies represented 74% of respondents’ assets under management, and indirect investments just 20%.
Housing accounted for 27% of respondents’ assets under management, and microfinance and other financial services combined another 27%. Following that, 10% was allocated to energy, and 5% each to health care and food and agriculture.
Respondents indicated that the latter three sectors would most likely experience increased allocations this year.
The survey found that allocations continued to be primarily in private markets, with 40% of assets invested through private debt, down from 44% last year, and 33% through private equity, well up from 24%.
Capital was diversified across regions, with about half invested in emerging markets and half in developed markets.
The largest number of investors planned to increase their allocations to sub-Saharan Africa, followed by east and southeast Asia, and Latin America and the Caribbean.
Survey participants said their portfolios were generally performing according to both their impact expectations and financial return expectations.
Twenty-seven percent of respondents reported outperformance against their impact expectations, and only 2% reported underperformance. In addition, 14% saw outperformance against their financial return expectations, while 9% said they had experienced underperformance.
Private equity impact investors reported 77 recent exits, 61 of which happened since 2012. Seventeen were in microfinance, and nine each in other financial services, healthcare and food and agriculture.
The report said the majority of these exits took place by selling to either a strategic or financial buyer, and most had come more than five years after investment.
Respondents indicated progress across the board on several key indicators of market growth, including collaboration among investors, availability of investment opportunities, use of impact measurement standards and number of intermediaries with significant track record.
Compared with 2013, investors appeared to have experienced more progress in 2014 on the availability of investment opportunities at the company level, the report said. However, challenges remained. The top three in investors’ views were these:
- Lack of appropriate capital across the risk/return spectrum
- Shortage of high-quality investment opportunities with track record
- Difficulty exiting investments
“Having surveyed the market for the past five years, we certainly are inspired by the growth in investments as well as the sample of exits we captured,” Yasemin Saltuk, director of research for J.P. Morgan Social Finance and the report’s co-author, said in a statement.
“Over time, the universe of investors and their approaches to the market have continued to expand, most recently with increased engagement from the corporate sector. In the face of increasing competition, we hope this research serves the market in developing a pipeline of high-quality deals going forward.”
Virtually all respondents said they measured the social/environmental performance of their investments, with the majority aligning with IRIS, the online catalog of generally accepted performance metrics for measuring social, environmental and financial performance.
Sixty-five percent of respondents said the business value of impact performance measurement was “very important” for improving financial performance of portfolio companies and informing future investments.
A majority of respondents agreed that impact measurement practice had improved, as had the quality of entrepreneurs/investment opportunities. They also saw governments playing a more active role in the sector.
— Check out Colleges Face Roadblocks to Socially Responsible Investing on ThinkAdvisor.