In a sign that impact-linked incentives will become more widespread, Allianz Global Investors is raising the topic in discussions with GPs as part of its fund investing programme.
“We are now starting to discuss with our impact GPs the possibility of incorporating some sort of impact-linked performance incentives,” said Diane Mak, director of impact measurement and management at AllianzGI, in a video interview produced in collaboration with 52 Digital at last week’s Impact Investor Global Summit.
Allianz Global Investors manages €506 billion in assets, 17 percent of which is in private markets. Within that it runs a number of impact-specific strategies. It has made commitments to TPG‘s Rise Climate Fund and Trill Impact‘s debut fund.
One of the more innovative ways for allocators to directly incentivise impact is by making some of the GP’s carried interest allocation contingent on certain impact targets being met. However, this type of mechanism is still relatively rare; 7 percent of impact investors use this type of mechanism, according to research by verification firm BlueMark. Managers will more commonly include impact performance in team members’ annual performance reviews, or link staff bonuses to impact objectives.
For AllianzGI’s Mak, this type of financial incentivisation aligns “our objectives around the table” and ensures “there’s a higher level of transparency and clarity in terms of what we are all trying to achieve”.
The impact investing marketplace is growing in sophistication, said Mak: “GPs and investors are growing in sophistication. Investors now have a clearer idea of what kind of impact they want to generate. Whether it is from a thematic perspective [or] the delineation between ESG and impact, I think we are getting clearer requests,” she said. “When we look across our investor base […] all of our investors are more educated and aware of what impact means to them.”
In terms of how AllianzGI assess managers, Mak said they look for GPs that are “very clear about their impact objectives, and they can really explain with clear rationale and evidence backing it up as to why they are targeting certain investment areas that they think will be highly additional from an impact perspective.
“Secondly, we like it when the GP can very robustly quantify and measure the impact that’s generated. For us that means we can be reassured about the significance of the impact we are generating when we invest a dollar or Euro in the enterprise.”