Giving Compass’ Take:
• World Economic Forum takes a look at the current landscape of impact investing through the lens of a new initiative to see what’s holding it back from being more mainstream. One analysis discovered that “there is often a communication and operational barrier between the investment committee and the program side of most foundations.”
• Can we break through those barriers with more knowledge? Some of the reticence on the foundation side is a lack of understanding for program-related investments. Another way to bring more scale is to appeal to liability-constrained investors (such as pension funds and insurance companies) in a more compelling way.
• Want a more exhaustive primer of the impact investing space? Here’s a roadmap for the future.
In order for the impact investment market to reach its potential, the ecosystem will need to progress from the margins and into the mainstream. Some mainstream investors are already making a play in impact investing. To note a few examples, Credit Suisse is raising a $500 million fund of funds that will invest in agricultural opportunities in Africa, Deutsche Bank successfully closed a $15 million “Eye Fund” for ophthalmological treatment in 2010, JP Morgan established a Social Finance unit in 2007 that actively co-invests in impact investment funds, and UBS developed an internal position dedicated to developing impact investment products for its clients. Despite these efforts, the ecosystem is still quite early stage, fragmented and largely comprised of niche players.
Although the impact investment ecosystem is best understood at the country and sector level, the Mainstreaming Impact Investing initiative analyzed the ecosystem globally to better understand where common gaps and pain points exist.
Capital providers are the most active in the impact investment sector are high-net-worth individuals and family offices. High-net-worth individuals and family offices have flexibility and a high level of discretion when making investment decisions. In many instances, they will have more autonomy than other capital providers; similarly, they often have fewer stakeholders to manage.
Development finance institutions are also leading capital providers in the impact investment market. Generally, they prefer to be catalytic and provide anchor funding, and thus are most active for first-time funds or investments. For example, the African Development Bank (AfDB) Group provided a $100 million anchor investment into Credit Suisse’s $500 million Agvance Africa Fund as a means to catalyze investment into the agribusiness sector in Africa.
Read the full article about mainstreaming impact investing from World Economic Forum.
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