LPs creating impact allocations to ‘exploit untapped opportunities’

Impact investing is a way for asset owners to “exploit untapped opportunities”, attendees at this week’s Global Impact Investing Network investor forum heard.

Although “impact is important to our stakeholders… [it] wasn’t what we were searching for”, said George Graham, a director at the South Yorkshire Pensions Authority, which has an allocation for local impact within its real assets bucket. “We wanted a different way of achieving returns from the property asset classes.”

South Yorkshire’s impact strategy includes regenerating commercial and industrial real estate to boost the local economy, create jobs, and increase energy efficiency and resource recycling in local properties, said Graham, speaking on a panel for asset owners at the forum. “Last financial year, the [impact] portfolio returned better returns than the rest of the broader portfolio. We went into that because investing in a targeted base locally was a way of achieving diversified returns.”

MassMutual, a US insurance company, has two impact buckets targeting Black- and minority-owned venture capital funds and businesses. “We’ve identified 300 funds in market in the US that represent about $15 billion in investment opportunity,” said Liz Roberts, head of impact investing at MassMutual, alongside Graham on the panel. “This is a process problem. There’s a market opportunity here that is just getting filtered out or overlooked by the status quo financial institution.”

“You are trying to find your returns in different places because that is actually a commercial opportunity,” said South Yorkshire’s Graham, responding to Roberts. “What we’ve been doing for property development is targeting a sweet spot in the market where banks weren’t lending in our area. In the same way, people won’t invest in black-owned businesses in Massachusetts or across the United States.”

Gesturing to himself and Roberts, Graham continued: “So what we’re trying to do collectively is exploiting those untapped investment opportunities.”

But returns are not the only thing investors on the panel were concerned with. Bess Joffe, head of responsible investment at the Church Commissioners for England – which does not have a dedicated impact bucket – said: “Our ideal scenario is for 100 percent of our portfolio to result in a win-win of returns and real world net positive outcomes on environmental and social outcomes.”

Roberts said MassMutual’s impact allocations were created after “we looked at how we can increase access to capital, advance racial equity and look to reduce some of these systemic barriers”.

And South Yorkshire’s Graham said: “To simply tell people that you’ve achieved a financial return doesn’t seem like enough. We need to understand the benefit we’re deriving beyond the return.”