ImpactAlpha, Apr. 3, 2018 –– The billionaires with their family offices command on outsized share of attention from impact fund managers. The real dollars, as in trillions, are in the huge pension and sovereign wealth funds around the world.
These supertankers of global finance, many commanding assets of $100 billion or more, are followed by fleets of banks and asset managers. Until recently, they were considered stodgy and risk-averse. They’re still risk-averse, and that has now led them to a strong and growing interest in impact themes of climate risk, resources risk and social risk.
Now, an increasing number of institutional managers are going beyond risk-mitigation and seeking upside opportunities as well. Starting slowly, the demand shift has gathered speed in the past two years as internal champions in major institutions reframed the conversation and began to move capital.
When institutional investors demand impact, people listen.
“Pensions and sovereigns are looking for strategies that take advantage of sustainability-oriented themes or threats, and allow them to play that strategy,” said Dave Chen, the head of Equilibrium Capital in Portland and the guest on the most recent episode of Returns on Investment. As a result, he says, “You’re seeing a wave of institutional-quality strategies and institutional scale.”
In full disclosure, Chen is a longtime friend and past sponsor of ImpactAlpha. Equilibrium, with more than $2 billion in assets on its platform, has developed investment themes around agriculture, water and real estate and he’s on the road constantly meeting with just such pension fund managers, making him an interested party in the institutional shift he describes. But the same familiarity makes him a valuable guide through the offices of global finance. In coming months, Returns on Investment will check in periodically with Dave to chart the institutional shift in course.
The early movers clump into groups, including northern European funds that manage multiple pension plans; public pension funds in California, New York and other states; Australian and New Zealand “superannuation,” or retiree, funds; and global insurance and funds and, of course, Canadians. Also shifting course are some sovereign wealth funds, particularly Norway’s, which at nearly $1 trillion in assets is so massive as to qualify as a category unto itself (see, “How are the world’s biggest asset owners playing the risks ahead?“)
Institutions are looking at renewable energy, at how they play in a low-carbon future, Chen said. “Stranded assets” have become a required consideration. “‘What assets don’t I want to be straddled with?’” Chen said pension fund managers are asking. What implications do droughts and water prices have for their portfolios? How is the climate changing the weather-performance of their physical assets? “How should they be thinking about protecting themselves, or shifting their assets?”
To be sure, not every impact investment thesis is able to absorb the checks of $50, $100 or $250 million that big institutional investors must write in order to keep so much capital working. But those that can have the potential to scale up to match the size of the challenges they are addressing, which are planetary in scope.
Billionaires and tech titans that are pointing some of their resources toward moonshots and breakthroughs are important. But it’s the institutional asset owners who will finance the global rebuilding, of food, water, energy, housing and health care.
“We really are seeing a market segmentation,” Chen says in the podcast. “In the high-net worth and family offices, the soundbite is, ‘Your money can do more.’”
“In the institutions, it’s all about risk and opportunity.”
Follow ImpactAlpha’s full coverage… of the Institutional Shift.