Impact Investing: Where’s the Accelerator?
I spent a few days last week in Calgary attending meetings with philanthropic impact investors around the edges of the Community Foundations of Canada 2015 conference. The discussions on impact investing in Calgary followed similar talk at the Council on Foundations annual conference in San Francisco two weeks ago. At both meetings, the room was full of foundations and their advisors and the conversation was animated. Mission Investors Exchange captured the US sessions via a twitter feed. Clearly there is lots of interest. But still many questions about how to accelerate the pace.
In Canada, we talked about what it will take to “turbo-charge” the impact investing market for foundations (some interesting ideas but no breakthroughs yet). In the US, they talked about getting started and what barriers there might be to making initial impact investments. In both countries, we are commonly now using the term “impact investing” although confusingly it still has multiple definitions, and can include a range of investments from conventional direct investments in for profit companies with a social purpose all the way to loans to small charities. In both countries, the interest in impact investing among foundations is moving from the early adopters to a slightly larger minority of foundation investors willing to explore the field more boldly. In Canada, we are talking about setting ourselves a target of up to 10% of foundation portfolios in impact investments. According to the recent survey of member investment strategies by PFC, the number of member foundations intending to make an impact investment in 2015 is 14 (compared to 5 in 2012).
It is true that in both countries there are similar challenges:
- Foundation boards seem to be applying tougher risk assessment constraints on their impact investments than on their conventional investments, or their grants.
- The supply of impact investment products isn’t large enough yet. Tim Ogden, blogging on the impact investing sessions for Alliance Magazine, noted that while the enthusiasm isn’t waning, the most common problem seems to be the pipeline of products.
- And there is limited availability of intermediaries where a foundation can get help with due diligence and investment spotting. This is especially true in Canada. Foundations with limited capacity rely on their investment managers and these are fairly risk-averse (see above). Ogden noted that the momentum of the field moving forward may be determined by how many foundations control their own investment strategies. “Perhaps the most significant question that will dictate what a foundation will do in impact investing is one I hadn’t considered: is the foundation’s fund being managed in-house or by professional asset managers outside the foundation?”.
But the market is growing Strategies and investment return data are now much more common. There is clearly lots of room for more education and supporting foundation boards with tips in exploring impact investing strategies. PFC will be working with Community Foundations of Canada on more webinars and information materials through 2015. And the new federal rule on investing in Limited Partnerships should help on the supply side! I am certain there is opportunity and interest to grow the application of assets to mission going forward.