Impact investing is changing lives, not finances

So-called impact investing, which aims to provide a tangible social benefit as well as a financial return, is excelling at improving lives, even if the monetary returns are softening, according to analysis of 82 large investors.

About 27 per cent of investors said the social impact of their investments had outperformed their expectations, up from just 14 per cent two years ago. Just 2 per cent said the returns had been disappointing.

However, the proportion that reported their impact investments had beaten their financial expectations slipped from 21 per cent to 14 per cent over the same timeframe. This was still above the 9 per cent that were disappointed with the financial returns.

The study, conducted by the Global Impact Investment Network and JPMorgan, the bank, did not outline exactly what the financial returns had been. However, it said just over half of the 82 respondents targeted "competitive, market-rate returns". The rest were willing to accept sub-market returns as long as they were not negative.

The respondents, which include fund managers, foundations and development finance institutions, manage $60bn of impact investment between them, two-thirds of which is on behalf of third-party clients.

They plan to invest a further $12.2bn between them in 2015, up 16 per cent from last year. The real growth rate is probably even faster, given that many financial institutions are still entering the sector. BlackRock and Bain Capital were among those that have ramped up their involvement in the past 12 months.

"We are seeing a huge influx of capital from new investors. A number of private banks are seeing significant client demand and they are working to create products to support it. A variety of investors are coming to us to try and find ways to get involved," said Amit Bouri, chief executive of the GIIN, who added that the bottleneck to faster growth was the number of suitable investment opportunities.

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Examples include France's Schneider Electric, which has invested in an emerging market solar finance company, Nestle, Novartis and Vodafone, which is collaborating to improve the business ecosystem in Kenya. Pearson, the owner of the Financial Times, is funding educational entrepreneurs in Africa, Asia and Latin America.

Housing and financial services (including microfinance) each accounted for more than a quarter of the impact investments made so far, the study found. However, energy, food and agriculture, healthcare and education are forecast to receive the largest share of funding in the coming years.

Around half of the existing investments were made in emerging markets, with a further 40 per cent in North America. The bulk of investments are currently made via private debt and private equity.

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