Asia impact investing to grow, despite volatility: survey
Impact investors intend to add more investments in the socially responsible category through 2019, despite rising trade tensions that are particularly centred around China, according to a new survey by the Global Impact Investing Network (GIIN).
The findings of the new study suggest Asia flows will be part of this increase, despite shorter-term fund flows to China falling as trade tensions between the country and the US rise.
GIIN said respondents to its survey, which was released on Thursday (June 20), plan to invest $37 billion into over 15,000 impact investments in 2019, a 14% growth over 2018. The median respondent expects to invest $20 million in 2019.
The company polled 266 impact investors, defined as having invested at least $10 million in impact investments or had made at least five impact investments. All-told, 28% of investors by assets were from North America, while another 20% were from Asia Pacific, including pension funds, development finance institutions (DFIs), for-profit and non-profit fund managers.
Impact investors typically target themes aligned to the Sustainable Development Goals (SDG) adopted by the 193 United Nations member states, which are designed to further social and environmental progress. More than 40% of impact investors polled by GIIN track their investment performance to the SDGs.
The survey indicated the overall impact investing market is robust. It estimated there were $502 billion in total assets under management (AUM) committed to global impact investing at the end of 2018, with $35 billion invested in 13,358 impact investments during 2018. Over one-third of this capital and nearly 70% of transactions were invested through private debt.
Asia is increasingly a part of this rise in investment. As previously reported, the region has been the world’s fastest growing region for impact investing over the past five years, in part because wealthy families in the region are getting more involved.
“Historically, most capital for impact investing in the region has originated from investors in North America or Western Europe. A particularly promising trend is the growing participation of local investors, led by wealthy families and high net-worth individuals,” said Abhilash Mudaliar, research director at GIIN.
However, the stated intention of impact investor respondents – particularly from Asia – to invest more runs contrary to broader fund flows of late.
Another report issued on Thursday (June 20) by research firm Lipper showed that US mutual funds have withdrawn $2.24 billion from China-focused funds since April 1. This is part of a wider trend which culminated last week in $12.27 billion being redeemed from US-based equity funds in just one week, according to Lipper’s data.
Investors are fleeing to cash and money market funds as the trade war between China and the US intensifies. Last week Beijing said it would raise tariffs on American-made goods in response to moves by the US to impose further tariffs on products from China.
While market volatility is affecting the broader fund industry, GIIN noted in its report that the biggest issue facing impact investors is a lack of "appropriate capital across the risk / return spectrum".
Over a third of respondents also cited a lack of suitable exit options, limited sophistication of impact measurement and management practice, and a lack of high-quality investment opportunities with track records as significant challenges. A lack of suitable impact investing opportunities for Asian families has been highlighted in the past by local investors.
Hong Kong-based family office RS Group, a pioneer in impact investing from Asia, has found it hard to develop its Asian portfolio. According to principal Annie Chen, “despite encouraging trends, we note these positive developments have limited reach in Asia. This has been a challenge for us since we began to build our portfolio. The local eco-system is relatively undeveloped and there is a lack of people and organisations interested in this approach”.
Nonetheless, 40% of the GIIN survey respondents indicated plans to increase allocations to Southeast Asia and India.
And most survey respondents were confident about the performance of the asset class. Ninety-seven percent of private-debt-focused investors and 88% of private-equity-focused investors said their impact investments have met or exceeded their impact and financial performance expectations to date.
Investors seeking a risk-adjusted market rate of return (over 70% of those surveyed) said their average returns were 7% and 8%, respectively. Those with below-market expectations reported returns of 4.4% since inception in developed markets and 7% in emerging markets.