state of the impact investing market · © global impact investing network, 2015 1 state of the...
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© Global Impact Investing Network, 2015
1
State of the Impact Investing Market
MAY 11, 2015
Eyes on the Horizon 5th Annual Impact Investor Survey
Survey Sample
© Global Impact Investing Network, 2015
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Most respondents headquartered in North America and Western Europe
Headquarter location Organization type
42%
36%
6%
5%
4% 3%
2%
0%
1%
1%
Northern America
WNS Europe
LAC
SSA
ESE Asia
South Asia
No single headquarter location
Oceania
MENA
EEC
57%
18%
9%
7%
5%
3% 1%
Fund manager
Foundation
Other
Diversified financialinstitution/Bank
Development financeinstiution
Pension fund or insurancecompany
Family office
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Investment Activity
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Overall, our sample manages USD 60bn in impact investment assets
63%
18%
9%
6% 2% 2%
0.01%
Fund manager
Development finance institution
Diversified financial institution/Bank
Foundation
Other
Pension fund or insurance company
Family office
Note: n=145.
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From 2014 to 2015, respondents plan to grow commitments by 16% and deals by 17%
In 2014 2015 Target
Number of investments
Capital committed USD mm
Number of investments
Capital committed USD mm
Mean 37 72 44 85
Median 7 10 8 14
Sum 5,404 10,553 6,332 12,241
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Impact investments are made all over the world
40%
14%
11%
10%
8%
6%
6% 3%
2% 0.20%
Northern America
SSA
LAC
EEC
WNS Europe
ESE Asia
South Asia
Other
MENA
Oceania
5
16
25
37
47
51
55
56
64
69
0 20 40 60 80
Oceania
Other
MENA
EEC
WNS Europe
ESE Asia
South Asia
Northern America
LAC
SSA
Assets under management Counts
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Investors plan to increase allocations to SSA, ESE Asia, LAC and South Asia
0
-10
0
-5
-1
-4
-7
0
-1
4
6
6
4
2
6
4
1
8
10
16
19
30
21
23
21
23
29
3
4
9
12
14
22
27
28
29
-20 -10 0 10 20 30 40 50 60 70
Oceania
EEC
MENA
Northern America
WNS Europe
South Asia
LAC
ESE Asia
SSA
Decrease Begin to assess Maintain Increase
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Impact investments are made across a broad variety of sectors
27%
17%
16%
11%
10%
5%
5%
2%
2% 2%
1% 1%
1%
0.00%
Housing
Other
Microfinance
Financial services (excl.microfinance)
Energy
Healthcare
Food & agriculture
Education
Information and communicationtechnologies
Manufacuring
Infrastructure
Habitat conservation
Water & sanitation
Arts & culture
12
18
20
22
29
31
53
56
58
59
66
71
78
84
0 20 40 60 80 100
Arts & culture
Habitat conservation
Infrastructure
Water & sanitation
Manufacturing
ICT
Housing
Energy
Microfinance
Education
FS (excl. microfinance)
Healthcare
Food & ag
Other
Assets under management Counts
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Investors plan to increase allocations to energy, food & agriculture, healthcare and education
0
0
-2
-1
-1
0
-9
-4
-1
-1
0
-2
-3
4
6
3
3
6
18
1
8
3
6
9
4
6
9
14
12
11
14
18
20
20
31
25
23
19
28
5
9
12
13
15
16
20
21
23
33
37
38
38
-10 0 10 20 30 40 50 60 70 80
Arts & culture
Habitat conservation
Manufacturing
Infrastructure
ICT
Water & sanitation
Microfinance
Housing
FS (excl. microfinance)
Education
Healthcare
Energy
Food & agriculture
Decrease Begin to assess Maintain Increase
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Most investments are made in private markets
40%
33%
8%
6%
5%
3%
3% 2%
0.20%
Private debt
Private equity
Equity-like debt
Public debt
Public equity
Real assets
Other
Deposits & cash equivalents
Pay-for-performance instruments (e.g.social impact bonds)
10
12
13
14
15
23
61
83
109
0 20 40 60 80 100 120
Pay-for-performance
Public debt
Other
Public equity
Real assets
Deposits & cash
Equity-like debt
Private debt
Private equity
Assets under management Counts
© Global Impact Investing Network, 2015
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Most investors invest at growth and venture stages
3% 6%
28%
52%
11%
Seed/Start-up stage
Venture stage
Growth stage
Mature, private
Mature, publicly-traded
Assets under management Counts
21
60
60
90
122
0 20 40 60 80 100 120 140
Mature, public
Mature, private
Seed/start-up
Venture
Growth
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Performance & Risk
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Performance is mostly in line with or exceeding expectations
Types of returns sought Performance against expectation
55% 27%
18%
Competitive-return Investors
Closer-to-market Investors
Capital-preservation Investors
27 14
71
78
2 9
0
10
20
30
40
50
60
70
80
90
100
Impact Expectations Financial Expectations
Outperforming In line Underperforming
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Execution and management risk remains the primary concern for impact investors
Rank Score Risk factor
1 288 Business model execution & management risk
2 132 Liquidity & exit risk
3 115 Country & currency risk
4 106 Market demand & competition risk
5 98 Financing risk
6 91 Macroeconomic risk
7 34 Perception & reputational risk
Note: Respondents ranked top three choices; n=146.
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Most private equity exits to date are in financial services sector and in South Asia geography
Sector
Geography
17
13
9 9 9 8
4 2 2 2
1
0
5
10
15
20
Microfinance Other Other FS Food & Ag Healthcare ICT Housing Education Energy Habitatconservation
Manufacturing
21
11 11 8 7 6
1 1
0
5
10
15
20
25
South Asia SSA WNS Europe LAC NorthernAmerica
Other ESE Asia EEC
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Most exits achieved through sale to another investor
6
11
7 8
6
28
0
5
10
15
20
25
30
< 12Months
1-2Years
2-3Years
3-4Years
4-5Years
5+Years
Exit mechanism Holding period
27
25
15
1
0
5
10
15
20
25
30
Strategicbuyer
Financialbuyer
Managementbuyback
IPO
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Impact Measurement
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Investors place strong importance on measuring both outputs and outcomes
1 2 5 12 14
32
1 2
11
18 25
30
12
24
51
42 33
33
86
72
33 28 28
6
0
20
40
60
80
100
120
Measuresocial/environmental
outputs
Measuresocial/environmental
outcomes
Benchmarksocial/environmental
performance
Measureadditionality
Measureattribution
Put a dollarfigure on
social/environmentalperformance
Not important Indifferent Somewhat important Very important
Note: n ranges from 125 to 146.
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Back Up
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Most investors use IRIS-aligned or proprietary metrics to measure impact
87 85
60
44
2
0
10
20
30
40
50
60
70
80
90
100
Through metrics thatare aligned with IRIS
Through propriatarymetrics that are not
aligned to any externalframeworks ormethodologies
Through qualitativeanecdotes
Through standardframeworks and
assessments such asGIIRS, GRI, etc.
We do not measuresocial/environmental
performance
How impact is measured
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Fund managers raise capital from a wide variety of sources
32%
19% 18%
13%
8%
6%
2% 1%
1%
Diversified financialinstitution/ Bank
Pension fund orinsurance company
Development financeinstitution
Family office/HNWI
Retail investor
Foundation
Fund of funds manager
Endowment (excludingfoundations)
Other12
13
21
27
30
34
41
47
58
0 10 20 30 40 50 60 70
Other
Endowment
Retail investor
Fund of funds
Pension or Insurance
DFI
Financial institution/Bank
Foundation
Family office/HNWI
Assets under management Counts
n = 80
© Global Impact Investing Network, 2015
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Investors generally believe the industry has matured over the past five years
20% 19% 16% 16% 14% 15%
3%
44%
58%
49% 45%
52% 52%
11%
33%
17%
26% 33%
27% 22%
41%
5% 6% 8% 10% 7% 10%
36%
1% 1% 9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
The quality ofentrepreneurs/investment
opportunities hasimproved
Impact measurementpractice has significantly
improved
Industry is a lotmore competitive
There has beennotable innovation in
deal structuring
Industry hastended towards
more "market-rate"investments
Governments areplaying a more
active role
Industry hastended towards
more "below-market"(or concessionary)
investments
Strongly agree Somewhat agree Neither agree nor disagree Somewhat disagree Strongly disagree
Note: n ranges from 128 to 141.
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Yet, important challenges remain on both the supply and demand sides
Rank Score Challenge
1 193 Lack of appropriate capital across the risk/return spectrum
2 174 Shortage of high quality investment opportunities with track record
3 115 Difficulty exiting investments
4 97 Lack of common way to talk about impact investing
5 87 Lack of innovative deal/fund structures to accommodate investors’ or portfolio companies’ needs
6 76 Lack of research and data on products and performance
7 67 Inadequate impact measurement practice
8 57 Lack of investment professionals with relevant skill sets
Note: Respondents ranked top three choices; n=146.
© Global Impact Investing Network, 2015
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Motivations for traditional investors to allocate capital to impact investments
Rank Score Motivation
1 80 They are a part of our commitment as a responsible investor
2 69 They are an efficient way to meet our impact goals
3 54 We are responding to client demand
4 38 They provide an opportunity to gain exposure to growing sectors and geographies
5 24 They are financially attractive relative to other investment opportunities
6 6 We do so to meet regulatory requirements
7 6 They offer diversification to our broader portfolio
Note: Respondents ranked top three choices; n=49.
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Breakdown of total AUM by source and investment type
Source of capital Type of investment
35%
65%
Capital on behalfof clients
Proprietarycapital
74%
20%
6%
Directly intocompanies
Indirectly throughintermediaries(including fundmanagers)
Other
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Respondents indicate progress across a broad range of market indicators
24% 18% 17% 16% 16% 11% 12%
5%
67% 69%
59% 66% 67% 67%
55%
48%
9% 12% 23%
17% 17% 21% 32%
47%
1% 1% 1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Collaborationamong
investors
Availability ofinvestment
opportunities atthe company
level
Usage of impactmeasurement
standards,metrics, and
methodologies
Availability ofimpact
investmentcapital across
the risk/rewardspectrum
Number ofintermediariesincluding fundmanagers with
growing,successful track
record
Availability ofresearch and
data onproducts andperformance
Level ofgovernment
support for themarket
Availability ofsuitable exit
options
Significant progress Some progress No progress Worsened
Note: n ranges from 124 to 140.
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Thirty-four percent of investors took part in a loss-protected investment in 2014
29 26
21
4
0
5
10
15
20
25
30
35
First loss reserve Gurantee or stand-byletter of credit
Subordinated or deeplysubordinated debt
Other
Instrument used for loss protection
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Common themes: What investors would like to see happen in the next five years
• More documented exits and greater liquidity
• Greater transparency about the variety of opportunities in impact investing—including varying risk/return profiles
– Recognition that impact investing does not have to be concessionary
• More market-rate investment opportunities
• Greater participation of institutional (commercial, mainstream) investors
• Increased opportunity for retail investors
• Common language and standardization/comparability of impact metrics and methods
© Global Impact Investing Network, 2015
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Impact investors seek to achieve impact in a variety of different way
100
89
62 56 53
19
0
20
40
60
80
100
120
Selling products andservices that
benefit our targetpopulation(s)
Providingemployment to
target population(s)
Integrating ourtarget population(s)into investee supply
or distributionchains
Achievingoperational
improvements thatbenefit the
environment
Selling products andservices thatbenefit the
environment
Other (pleasespecify)
Models for achieving impact
© Global Impact Investing Network, 2015
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Co-investors are widely considered important in impact investing
n= 146
28%
59%
8%
5% Co-investors are critical in our assessment;we only invest if we feel we are stronglyaligned with co-investors
Co-investors are important to consider butnot a priority
We do not give much importance toassessing co-investors
Irrelevant
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Respondents feel competition stems mainly from limited investment opportunities
32%
58%
10%
No significant competition
Some competition
A lot of competition
70
51
41
34
25
0
10
20
30
40
50
60
70
80
Limitednumber
of investableventures
Limitednumber
of scalablebusinessmodels
Limitednumber
of qualifiedentrepreneurs
Many investorsin my target
region(s)
Many investorsin my target
sector(s)
Perception of competition in market Causes of competition
n= 146
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Investors use technical assistance to address a range of issues
89
63 63 61
44 44
0
10
20
30
40
50
60
70
80
90
100
Generalmanagement
(e.g. improvingefficiency or
quality of businessprocesses)
Accounting orfinancial systems
Industry-specificskills enhancement
Impactmeasurement
HR and otherinternal policies
Productdevelopment
Use of technical assistance
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Many investors also use technical assistance prior to investment
Stage of technical assistance use
96
43
29
0
20
40
60
80
100
120
During the investment period Post due-diligence, but prior toinvestment
Prior to due diligence
© Global Impact Investing Network, 2015
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Government can play a role by providing tax credits and subsidies
Rank Score Potential policy
1 205 Provision of credit enhancement, e.g. guarantees, first-loss, etc.
2 184 Tax credits or subsidies for investors
3 126 Technical assistance for investees
4 124 Streamlined, clearly defined regulation for investment offerings
5 111 Co-investment by government agency on similar terms
6 52 Procurement from investees
Note: Respondents ranked top three choices; n=138.
Perceived helpfulness of potential government policies
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