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The Markets November 15, 2016
Investors Increasingly Taking Up Impact Investments
Forty-four percent of financial advisers say they would be willing to accept lower returns in order to achieve a positive social impact.
Reported by Rebecca Moore
One-third of institutional investors plan to increase portfolio allocations to impact investing in the coming three years, according to a survey by Greenwich Associates and American Century Investments of approximately 75 U.S. institutional investors, more than 50 professional buyers at intermediary distribution platforms, and more than 150 financial advisers that work with high net-worth and individual investors.
One-quarter of those institutions plans to boost allocations by more than 10%.
“There is a clear—and growing—desire among institutional investors to use their investment pools to support both the financial and societal goals of participants, organizations and stakeholders,” says Greenwich Associates consultant Andrew McCollum.
Three-quarters of decision-makers for intermediary platforms and 80% of financial advisers believe client allocations to impact investments will increase in the next three years.
Even amid this growth, the study results reveal that attitudes and perceptions about impact investments vary widely, and that assets of pension funds, not-for-profit endowments and foundations, and individual investors are flowing into a category that is not yet well defined. Investors also vary in their levels of satisfaction with current impact investing efforts.
Greenwich Associates says the most striking divergence in perceptions relates to investors’ attitudes about returns. While the vast majority of study participants say they expect impact investments to deliver at least market-rate returns, 40% of corporate pension funds and 44% of financial advisers say they would be willing to accept lower returns in order to achieve a positive social impact. However, public pension funds and defined contribution (DC) plans see superior investment performance as a requirement for investment.
“The definition and best practices of impact investing will take shape and solidify as the category attracts new participants and assets,” says McCollum. “During this maturation phase, investors will benefit by working with intermediaries and asset managers willing to help educate them about impact investing and define the proper role for the category within their portfolios.”
The complete findings of the study are found in two reports “Impact Investing: Individual Investors Seeking New Opportunities” and “Impact Investing: Institutions Awaken to New Possibilities.”