Allianz GI’s ideas to avoid passing concessionary returns onto impact LPs

Balancing risk, return and maximum impact is ‘a lot of work’ and doable, says Matt Christensen, the asset manager’s global head of sustainable and impact investing.

The trade-off between impact and returns for the “bottom of the pyramid” – the poorest two-thirds of the global population – is not entirely fictitious, delegates at New Private MarketsImpact Investor Global Summit this month heard.

This supposedly inevitable trade-off often puts institutional investors off from impact investing, although many impact investors now see this as a myth that has been busted. Allianz Global Investors said it has a handful of ways to maximise impact while meeting institutional LPs’ expectations for risk-adjusted financial performance.

One method is “playing around with portfolio allocations”, said Matt Christensen, Allianz GI’s global head of sustainable and impact investing. “You can make some small trades within that composition” to include assets with higher impact and lower financial performance. Allianz GI does this for both direct investments into companies and fund commitments, said Christensen. The firm tells investor clients: “We are [delivering] a market rate return. That [does not mean] it is pure maximisation to the hilt”. This approach “gets the door open for dialogue” with clients about more concessionary impact investing.

Allianz GI also develops funds as “blended finance [strategies] and public-private partnerships”, said Christensen. Allianz GI has junior and senior tranches for emerging markets-focused private equity, private debt and venture capital funds. DFIs and investors with more risk appetite make up the junior tranches; the institutional investors in the senior tranches have more downside protection, which mitigates the lower projected returns, said Christensen. “Blended finance can be an effective tool, but it’s a lot of work.”

Christensen cited four vehicles that Allianz GI applies its blended finance approach to: Global Infrastructure Equity II, in market with a €1 billion target; Global Infrastructure and Energy Transition Debt, launched this year targeting €750 million; the Africa-focused Climate Action fund, in market and targeting €500 million; and AfricaGrow, a €200 million venture capital fund of funds that closed in 2019, according to NPM‘s database.