Podcasts | March 23, 2017

What is ‘scale’ in impact investing and how do we get there?

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Impact investing asset managers manage some $35.5 billion in assets, up 18 percent in the last two years. That may sound like a lot, but in a $70 trillion capital market, it’s a rounding error. Meeting the 2030 Sustainable Development Goals, for example, requires as much as $5 to $7 trillion each year in public and private investment.

So what does “scale” mean in impact investing? Growing amounts of capital? Bigger deals? Measureable dents in social and environmental challenges on the ground? Who decides?

“If you measure scale by capital commensurate with the need, we’re not close,” says ImpactAlpha editor David Bank. “If you measure it against the growth curve, things are scaling up.”

The fund sizes of impact investment managers on their second, third or fourth funds are growing from $50 million to $150 million to $400 million or more. DBL Partners is close to, and Leapfrog Investments and Equilibrium Capital are well over $1 billion in assets under management. TPG, a more traditional private equity investor, has committed to raising a $2 billion impact fund called TPG Rise.

“Fund sizes are growing just like in hedge funds and other markets,” says Bank. “But it’s not nearly enough to meet the need.”

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That need is large. The price tag for delivering the U.N. Sustainable Investment goals, for example, is anywhere from $5 to $7 trillion annually through 2030, in public and private capital.

Global challenges such as poverty, climate change and water scarcity, says Imogen Rose-Smith, who covers impact investing for Institutional Investor, require large amounts of capital to solve.

So the world needs institutional investors writing large checks. While institutions such as Calpers, California’s pension fund, are beginning to build more socially-conscious investment strategies, they are struggling to find managers and deals they are comfortable investing in.

“There’s a disconnect between the rhetoric and what people are actually doing,” says Rose-Smith. “I think [institutional investors] will become impact investors. You’ll just need to call it something else.”

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