The Global Impact Investing Network held its global investor forum in The Hague last week – its first in-person for three years. With impact investors, managers, service providers and market actors in attendance, there was no shortage of talking points. Here are five key takeaways:
Impact in a downturn
With rising inflation and interest rates, maintaining performance and valuations will be a more challenging task for private equity fund managers, as affiliate publication Private Equity International has reported (registration required). But Bain Capital managing director Peter Spring expects impact funds can weather the storm by selecting themes that provide essential services and draw public funding. He said: “The themes we’re investing behind are such huge megatrends with so much secular growth: health, education, climate – those will remain strong through the macro environment.”
Carried interest conundrum
Impact-linked carry does not interest all impact fund managers. One audience member – a limited partner in Europe – said that when they had introduced the concept they had “got a lot of pushback” from managers, who told her “other asset managers are resisting […] this because they think we will put impact first and returns second”.
There are also problems with setting impact targets on acquisition of portfolio companies, which is often required when linking carry to impact, one impact manager told New Private Markets. Managers cannot necessarily predict how a growth-stage company’s impact will unfold through the ownership period – and tying financial rewards to this can mean managers avoid adapting to new impact opportunities, the fund manager said.
Inclusive capitalism is impactful ‘in and of itself’
The Ford Foundation is seeking fund managers that are “25 percent diverse-owned” because “we see diversity as impact in and of itself”, said Roy Swan, head of Ford Foundation’s mission investments. Underrepresentation of women and minorities is such a significant social problem in asset management that “[a threshold of] 25 percent will do it for us”.
KKR’s head of impact, Ken Mehlman, said: “We collectively have an opportunity to invest around building a more [equitable] workforce.” KKR’s employee ownership initiatives, which grant company share options to portfolio companies’ employees, have several impacts for the company and the workforce, said Mehlman. It is “a meaningful economic incentive” for employees’ performance; companies “provide financial literacy, so [employees] understand what that stock means and how they can contribute to it. And you also address inequality in today’s world. A lot of folks, including most of us in this room, have access to the stock market and a lot of wage workers don’t.”
Growing appetite for food
Another sector piquing investors’ interest is food systems investing – such as alternative proteins with lower carbon footprints, food waste reduction platforms, and technologies and systems to reduce agriculture’s resource consumption and environmental degradation. “The food and ag space particularly excites me because our food system is not fit for purpose in the 21st century,” said Steve Howard, chief sustainability officer at Singaporean state-backed investor Temasek. “Food security, healthy food and sustainable food is something we need to dive deeply into.”
Investors have different views on the use of carbon offsets. Some, like Capricorn Investment Group partner Rob Schultz, believe investors should “act now… there’s nothing wrong with removals and avoidance credits”. Others, like Ilmarinen Mutual Pension Insurance Company’s head of responsible investment, Karoliina Lindroos, said carbon markets currently present authenticity and reliability issues, such as the permanence of carbon removal. Both investors have set net-zero 2050 targets.