1.3 Focus and Scope
1.3 Focus and Scope
The focus of this report is on the supply side of the capital equation and intends to answer the question: What constraints do mainstream investors face when approaching the impact investment sector? In this context, mainstream investors include asset owners (including pension funds, insurance firms, sovereign wealth funds, university endowments, foundations and family offices) and asset managers (including private equity firms, mutual funds, hedge funds and asset management divisions of banks), which adhere to conventional wisdom when making investment decisions and which are not actively investing in impact investments. Throughout the report, special emphasis is given to asset owners. It should also be noted that the focus of the report is primarily on the institutional investor and not the retail investor.
Although many exceptions exist, the leading asset owners that are allocating capital to impact investments today include development finance institutions, family offices and high-net-worth individuals (refer to Figure 2). However, relative to other sources of capital, these investors hold only a small share of the global capital pool (see Figure 3). This report will address the factors that constrain other types of asset owners from allocating capital to impact investments.
Impact investing is currently growing linearly. In order for it to grow exponentially, we need to find a way to incorporate mainstream investors into the mix.
Randall Kempner, Executive Director, Aspen Network
of Development Entrepreneurs, Aspen Institute, USA
A risk in attempting to accelerate the supply of capital into impact investments is the potential for good capital to chase bad deals and potentially create a bubble. A key question that should be asked is whether or not the sector actually needs additional capital, and whether or not a lack of access to capital is constraining the sector from reaching its potential. There must be enough investable organizations within key sectors across various geographies to justify a surge in capital flow. This risk is an important one and hinges on one’s definition of impact investing, which is discussed at length in Section 2.
10. Survey respondents ranked their answers and scores were weighted based on the frequency of selection (3 points if ranked first, 2 points if ranked second and 1 point if ranked third); the stand-alone score of each source of funds is thus less important than the relative score.
Source: GIIN, J.P. Morgan
Note: Omitted from the analysis include Mutual Funds, Asset Management Divisions of Bank and Fund Managers (Private Equity, Hedge Funds, etc.)
Source: OECD, Foundation Center, NACUBO, Overseas Development Institute, Deloitte Analysis