5 interesting findings from new impact investing survey

As attention starts to build around the Financing for Development conference in Ethiopia this summer, there is little doubt that the extent of the role of private sector finance will emerge as a key theme of discussion.

The latest annual survey of the impact investing industry, conducted jointly by J.P. Morgan and the Global Impact Investing Network, may provide some clues about what kinds of funds are available.

“One thing the survey does show is that there is significant and growing private capital out there that is interested in addressing social and environmental issues,” said Abhilash Mudaliar, research manager at the GIIN.

The survey, which was released Monday provides a glimpse into growth, investment type and industry projections. Here are five interesting findings from the report:

1. The impact investing industry is growing. Those surveyed committed $10.6 billion in 2014 and have $60 billion under management — and plan to grow about 16 percent in 2015. If compared with last year’s survey results, growth seemed to have stagnated; last year’s survey respondents committed $10.6 billion in 2013 and projected to invest $12.7 billion in 2014.

But Mudaliar warns against comparing the two surveys. Last year’s survey, for instance, had a slightly smaller and different pool of respondents. The 82 respondents to both surveys, however, increased the amount of money they committed by 7 percent and made about 13 percent more investments.

2. It’s still a young industry and the key challenges reflect that reality. The two key issues investors reported were a lack of the right type of capital for the type of risk or return they were seeking and too few high-quality investment opportunities with a track record.

This will likely change over time especially as the spectrum of investors and investment types from mainstream large institutional players like BlackRock Inc. and Bain Capital to small funds like the Unitus Seed Fund provide a variety of investment option. Similarly, issues around track records will be solved in time, as existing funds and product types are around longer.

3. A majority of impact investments are accompanied by technical assistance. While many investors provide technical assistance in-house, some organizations get funding from development finance institutions and partner to provide services to the companies they invest in.

Notably, those investments aren’t just after an investment is finalized, but often technical assistance will be provided in advance to get a potential investee ready.

4. Large corporations are starting to get into the impact investing space. Several large companies, including Schneider Electric, Pearson and Patagonia are using corporate venture investments to engage. While corporate investors are not included in the survey, their emergence generates questions about how corporate giving or investment may change over time. Whether these types of impact investments replace traditional philanthropy or provide a different business stream for some companies will be worth watching in the years ahead.

Future J.P. Morgan and GIIN surveys will likely look to capture data on this emerging part of the industry, Mudaliar said.

5. There is growing diversification in the type of investments that are being made. This could indicate a shift in the direction of financing businesses that address some of the key social and environmental challenges the proposed sustainable development goals will set out to tackle. While housing, microfinance and other financial services have accounted for the majority of investments in the past, the sectors investors report to plan the most growth in are energy, food and agriculture, healthcare and education.

Sub-Saharan Africa was the region where the highest number of respondents said they wanted to increase their investments — with East Africa standing out as a key area where the impact investing industry is growing and generating some competition among investors.

Funds are also seeking a variety of types of returns, with the majority of those funds (55 percent) targeting competitive, market-rate returns. Twenty-seven percent meanwhile seek close-to-market-rate returns and 18 percent are geared more toward preserving capital.

While this latest survey didn’t directly ask many questions about development finance, the landscape of impact investment and the projections of its fund managers may well influence the development finance debate.

What role do you think impact investing will play in the future of development finance?

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