A big moment for impact

Global impact investing AUM has passed the $1trn milestone, but as the market grows, impact funds are having to find ways to stand out from the crowd.

In October, the Global Impact Investing Network published its latest Sizing the Impact Investing Market report, which estimates that impact assets under management worldwide have soared past the $1 trillion mark to just over $1.16 trillion. In the report, the organisation’s chief executive and co-founder, Amit Bouri, refers to this figure as “a significant psychological milestone for an industry still maturing and growing in sophistication”.

It is worth noting that the network’s previous estimate sized the impact investing market at $715 billion in 2020 – that is considerable growth in a short period, particularly given that the markets have grappled with a global pandemic in between.

Despite covid – or perhaps in part because covid highlighted the need for investment to address the many challenges facing communities and the planet – new players have continued to enter the impact arena.

Indeed, analysis of a sample of organisations undertaken by GIIN for the report indicates that impact strategies still account for a small portion of the average investment portfolio, which it suggests could reflect the “increasing number of new entrants that initially have smaller funds”.

Alongside the newcomers, more seasoned managers have also continued to raise capital for impact funds as investor appetite for the strategy builds.

This has led to increased competition in the market, both for LP capital and deal targets. Impact funds are looking for ways to stand out, and the shift towards specialisation that has borne out in the buyouts space now looks to be materialising within the impact investing market.

Specialisation can come in various forms, from deep expertise in specific geographical markets or a focus on certain impact themes, to the differentiated resources a GP can offer portfolio companies.

“We think specialists enjoy advantages as it relates to sourcing and post-acquisition value-add capabilities,” John Beil, managing director and head of private equity and real estate at Partners Capital, told Private Equity International. “On the latter, we find it easier to build conviction in a tried-and-tested, repeatable playbook that specialists have developed over a less formulaic approach offered by generalists.”

Impact now has a $1 trillion-plus milestone under its belt, and with that comes growing pains that the industry will need to continue to resolve. These include challenges around monitoring, reporting and benchmarking, as well as concerns around so-called impact washing – a worry that is “keeping investors up at night”, Blue Earth Capital associate Katie Manescu told delegates at PEI’s Investor Relations, Marketing and Communications Forum in October.

Addressing such issues should help the industry reach new heights and compound impact investing’s role in tackling the most pressing issues of our day. As Bouri notes in the report: “All industry players have a role to play in ensuring that impact investing meets the moment and fulfils its promise.”