In a world of immediacy, big data, and increased transparency, today’s well-informed dare I say, socially conscious millennial investors are demanding more than mere 4% dividend yields and moderate financial gains from traditional 401ks and Roth IRAs. They’re looking for accountability and visibility for the money they invest. No more allocating percentages of hard income into meaningless mutual funds. Show us some social good. Show us today.
These new investment demands should come as no surprise following the reckless exploits of the Madoffs, Abramoffs and Lehman Brothers of the world. The financial crisis of 2008 continues to spur a renewed focus on finance that doesn’t endanger the lives of others, but rather increases the overall health of society. Millennials and social savvy investors want their money put to work in a way that solves growing global issues like access to affordable healthcare, education, and income disparity. Welcome to swell that is “Impact Investing” A swell producing the likes of the Social Impact Investing Taskforce established by UK Presidency of the G8 as well as the US National Advisory Board on Impact Investing.
Impact Investing & Microfinance
Impact investing is not new. In fact, it’s existed on a smaller scale for quite some time operating under the alias of Microfinance. Most people have some understanding or know of the efforts of Nobel Peace Prize winner, Muhammad Yunus and the Grameen bank. The principles underlying both methods of capital investment are the same. Invest in efforts that not only provide a financial return on investment, but also specifically target social needs. In the process, create a democratization of capital for entrepreneurs and communities to create good. The growing awareness around Impact Investing in many ways illustrates the commitment at the institutional level for investment products/services that produce both social and financial returns. Morgan Stanley’s Institute for Sustainable Investing is a perfect example of this. Nevertheless, some may view such large scale efforts as a vehicle to reverse public perception of an industry ever so eager to regain the trust and lasting business of its consumers.
According to a recent article in Forbes, JP Morgan along with the Global Investing Network studied 125 fund managers, foundations, and development finance institutions and uncovered $46 Billion in sustainable investments under management. Here are some other findings from the JP Morgan’s study.
Rise in capital allocations and number of transactions expected in 2014
- Expected commitments of $12.7bn expected by survey participants in 2014, up
from $10.6bn committed in 2013, a 19% increase.
- 31% anticipated increase in the number of deals
- $4.5bn fundraising target among asset managers in 2014 versus $2.8bn raised
in 2013. Microfinance and other Financial Services each account for about a
fifth of respondents’ impact investment assets (21%), followed by Energy (11%)
and Housing (8%)
Investor motivation and satisfaction
- 91% of investors surveyed reported financial returns above or in line with their
- 99% reported social and/or environmental impact above or in line with their
- Over 50% of investors are seeking competitive financial returns
Some analysts estimate the Impact Investing market to grow to over $3 Trillion dollars by 2020. Maya Chorengel, co-founder of Elevar Equity, an impact investment fund highlights, “Impact investing should be central in discussions about the future of capitalism. As long as the number of socially focused entrepreneurs continues to grow, the need for meaningful investment will flourish.