Alternatives, Asset Allocation, Asset Managers, Defined Benefit, Endowments/Foundations, ESG/SRI, Institutional Investors, Pension Funds, Private Equity, Public Funds

Almost All Investors to Boost “Impact” Allocation Over Next Three Years: KBIGI Survey

A whopping 94% of responders to a new survey released by Dublin-based KBI Global Investors (KBIGI) say they are looking to increase their allocation to impact over the next one to three years. The survey found that 78% of respondents are currently investing in the impact investment space, with 21% investing through public equity, 21% through private equity, and 35% in both. And no less than 70% confirmed their appetite for further education and training in the impact space. Also, the survey found that a mere 15% of respondents agreed with the concept of accepting lower returns in impact investing.

“More and more investors are looking to align the mission of their organisation with their investments,” according to William Boardman, senior vice president, business development and client services at KBIGI. “Improvements in reporting and transparency have led to more sophisticated investment solutions that investors of all stripes are embracing with enthusiasm,” he said.

William Boardman, senior vice president, business development and client services at KBIG hots Dublin

KBIGI is a global ESG-focused investment manager with €10.9 billion ($US12.7 billion) in assets under management (AUM). Respondents to the KBIGI survey, titled Investors Views on Public/Private Approach, include foundations, endowments, asset managers, consultants and advisors.

What surprised Boardman most about the survey’s results was the high percentage of respondents who pointed to difficulties in identifying suitable impact investment opportunities in the private equity space.  In fact, 92% of respondents described these difficulties as an important negative factor when considering impact investments in that space, and close to half of the respondents identified it as being a very important factor, he noted.

“This strongly indicates that there are nowhere near enough suitable impact investment opportunities in the private equity space to meet investor demand,” Boardman asserted. “It demonstrates that investors have to consider public (i.e. listed) equities as well as private equities when looking at impact investing—and many of them are doing so already.”

Given the traditional focus on private equities for impact investment, Boardman was also “quite surprised to see that a full 83% of respondents would consider both public and private equities when looking for future impact investing opportunities.”  According to the KBI GI survey, a blended public/private approach to making impact investments was the most widely implemented strategy among investors, with 56% of investors using public equities for all or some of their impact allocations, compared to the 83% of respondents who confirmed that they would consider a blended approach to impact investing, going forward.

Access is a challenge

The biggest challenge survey respondents cited was the ability to access appropriate impact investment opportunities in the private space. It is very often dependent on the investors’ size, Boardman observed. “Access can be a challenge for smaller investors looking for private equity opportunities to which to commit resources, due in part to the amount of due diligence that is required. In many cases, high minimums are also required for making allocations which can be a challenge for smaller investors,” he said.

In fact, accessing appropriate impact opportunities was identified as the greatest challenge by almost 6 in 10 investors (59%), with 21% citing cost as an issue due to the high fees being charged in private equity deals. Another 21% cited a lack of liquidity as holding them back, due to the long lock-up periods, Boardman noted. Fifteen percent of investors identified no challenges whatsoever, according to the survey.

In the public equities space, 81% of investors said the ability to make impact investments at scale was the biggest attraction for investors. At the same time, “77% of respondents said that better access to investment opportunities was a strength of public equity investing, and it was “important” or “very important.”

Another big challenge investors see in the public space is the ability to effectively measure impact. According to the survey, 38% cited it as being very important, compared to 47% citing it as “important” and 14% saying it was “somewhat important” with just 1% saying it was “not important.”

KBIGI Survey

The survey also found that “investors don’t accept that there is a trade-off between investment performance and impact,” and that the “impact community at large needs to do more to connect, educate and make impact investing more tangible for investors.” Sacrificing performance is not something that most investors find acceptable, especially in the public equity space where only 15% agreed with the concept of accepting lower returns for impact investment, the survey found.

In terms of what draws investors to the impact investing private space overall, it is not a control or majority stake or lower correlations, “but very clearly the relative ease of impact measurement and the perception of tangible additionality,” according to the KBIGI report. Johan Florén,head of communications and ESG at AP7, a Swedish public pension plan, confirms that sentiment. He is quoted in the report as saying “AP7 sees…impact investing mandates as an opportunityto be a part of the solutionto some of the most pressing sustainability challenges that the world is facing, and we believe this can be accomplished without sacrificing investment performance. In a broader perspective, there is a healthy shift taking place right now from portfolio level risk to real economy risk. We expect this dynamic to persist for years to come.”

The KBI GI survey was conducted in April and included responses from 80 organizations in the asset manager’s network of responsible investing contacts. Thirty percent have an AUM over $10 billion, 37.5% have an AUM that is greater than $1 billion and 32.5 % have an AUM between $1 to $10 billion.

KBIGl has been investing in responsible investments since the 1980s, when most of its investor-base was made up of religion-based organizations that were looking to weed out investments in sectors such as weapons, tobacco, and alcohol from their portfolios.

The asset manager began investing in natural-resource equities in 2000. It invests in companies that provide solutions to sustainability challenges in the area of food, energy and water and that have a focus on mitigating and adapting to the impacts of climate change, offering a range of global equities and natural resources strategies. 

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