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Impact Imbalance?

GIIN is out with the “Impact Investor Demographics” report, which – inadvertently? – highlights an imbalance we’ve noticed: more impact fund supply than impact fund demand (at least in the faith-based asset owner space), and despite the attention, and expectations, the vast majority of impact offerings are market rate – versus at or below market returns.

For their report, GIIN queried over 2,000 impact investors, just 308 responded, mostly asset managers (fund providers), as shown below, with pension funds (fund “buyers”) – really fiduciary-based investors - representing just 1%. Of other institutions, foundations represented the largest slice at 11% and DFIs just 5%.

Begging a question: where are the asset owners in impact investing? This echoes an impact investing group meeting I recently joined where the impact asset managers present essentially asked 'where are the investors?'.

Phenix Capital’s '2023 Impact Fund Universe Report' suggests investments are flowing into impact funds, with €539 billion raised by impact managers in 2022, and clearly on an upward trend:

While supply of new impact funds remains significant, according to Phenix, with 130 new funds launched in 2022, adding to a total of 889 impact funds currently raising capital, “with an average target size of €350million per fund” – for just over €300 billion new in supply. Who is buying this significant supply - foundations?

Our research into faith-based asset owners (FBAOs), in our soon-to-be-published update to the Good Intentions study, shows just 38% of FBAOs allow impact investing, and we suspect, based on experience, far fewer actually do impact investing.

Further, GIIN revealed, those who do impact investing, in the majority at 74%, seek “risk-adjusted market-rate return”, with just 12% seeking below market “close to capital preservation” results.

Unfortunately, no trend data here; is the below-market segment 'small but growing', shrinking, or static? Who does, and can do, below market? Our upcoming 7 September FCI IG will focus specifically on this area of “grant investment alternatives” – closer to capital preservation investing as an alternative – in certain circumstances, to grant making – looking at who does it, why and where, with a case study from one FBAO currently pursing it – do join! More information and registration here.


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