state of the impact investing market · © global impact investing network, 2015 1 state of the...

© 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


4

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


5

Investment Activity


6

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.


7

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


8

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


9

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


10

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


Infrastructure

Water & sanitation

Manufacturing

ICT

Housing

Energy

Microfinance

Education

FS (excl. microfinance)

Healthcare

Food & ag

Other



11

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


Manufacturing

Infrastructure

ICT

Water & sanitation

Microfinance

Housing

FS (excl. microfinance)

Education

Healthcare

Energy

Food & agriculture

Decrease Begin to assess Maintain Increase


12

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



13

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


21

60

60

90

122

0 20 40 60 80 100 120 140

Mature, public

Mature, private

Seed/start-up

Venture

Growth


14

Performance & Risk


15

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


16

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.


17

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


18

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


19

Impact Measurement


20

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.


21

Back Up


22

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


23

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


n = 80


24

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



25

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



26

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



27

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


28

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



29

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


30

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


31

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


32

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


33

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


34

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


35

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


36

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


Perceived helpfulness of potential government policies

state of the impact investing market · © global impact investing network, 2015 1 state of the...

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