The trend of impact investing — into companies, organizations and funds with the aim of investing for social and environmental good, as well as a financial gain — is becoming more specific.
“We are seeing increasing interest from local authority pension funds, the charity and foundations sector and from some corporate pension schemes in impact investing,” said Kate Brett, London-based senior responsible investment specialist at Mercer Ltd.
“We have seen two different camps: some are driven by an existing corporate responsibility program, and are looking at how that could be reflected within their pension scheme investments. ... The other camp likes the idea of impact investing, but wants to do it locally.”
U.S. public funds, including public employee pension funds, had allocated almost $87 billion to place-based investing — where investors target a defined geographic area for financial returns as well as to benefit that area — as of Dec. 31, 2013, according to US SIF, the forum for sustainable and responsible investment.
In its “U.S. Sustainable, Responsible and Impact Investing Trends 2014” report, published this month, the forum said place-based investing is receiving “recognition as a focus for SRI” and has “emerged as a new trend, accounting for nearly $90 billion in assets.” Among the 12 institutions reporting this type of allocation, descriptions included “economically targeted investment” and “local investing.”
The report said investors invested locally to improve their home state's economy, expand the tax base and to improve “future funding ratios for the pension fund. Improving infrastructure and affordable housing in an area may also directly increase beneficiaries' quality of life,” said the report. The report highlighted the $46.6 billion New York City Teachers' Retirement System, which committed $1 billion to investing in infrastructure in New York City and the tri-state area after Hurricane Sandy hit in 2012.
But figures from data provider eVestment LLC, Marietta, Ga., show varied institutional inflows. In the three months ended June 30, non-U.S. impact investing inflows totaled $886.6 million, an increase of 44% compared with inflows for the same period a year earlier. Total assets in non-U.S. impact investing were $29.9 billion at June 30, 2014. For U.S. institutional oriented investment, impact or environmental, social and governance investing recorded $2.2 billion of outflows in the three months ended June 30. However, that followed $3.6 billion of inflows in the previous quarter. Total assets were $89.3 billion at June 30.
While global specific local investment could not be quantified, the trend is gaining ground:
- The “California Initiative” of the $296 billion California Public Employees' Retirement System, Sacramento, commits capital to companies located in traditionally underserved markets, primarily in California. This month, the fund committed $80 million to a new, California-focused private equity fund run by Grosvenor Capital Management LP, in an effort to revitalize the initiative, which was launched in 2001 as a $1 billion private equity investment but has had poor returns.
- Six U.K. local authority pension funds committed a total £152 million ($238.6 million) to social impact funds in June, with a focus on positive social and environmental outcomes in the U.K. The pension funds are the £10.5 billion Greater Manchester Pension Fund, Manchester; £10 billion West Yorkshire Pension Fund, Bradford; £10.1 billion West Midlands Pension Fund, Wolverhampton; £5.6 billion South Yorkshire Pension Fund, South Yorkshire; £5.8 billion Merseyside Pension Fund, Liverpool; and £3.4 billion East Riding of Yorkshire Council Pension Fund, East Yorkshire. The commitments are part of pension fund initiative Investing4Growth.
- The West Midlands Pension Fund also committed £40 million to a “Finance Birmingham” program in the year ended March 31, 2014. The project provides finance to small and local business ventures in the West Midlands. The WMPF also committed £50 million to the Pensions Infrastructure Platform, a project designed to give pension funds greater access to infrastructure projects in the U.K.
“There is a need and requirement and incentive to make sure that these investments are all done to benefit the public and society in general,” said Mike Weston, London-based CEO at the Pensions Infrastructure Platform. “Schools and hospitals and renewable energy are areas of infrastructure we are looking at.”
The PIP's first fund, managed by Dalmore Capital Ltd., had its first close in February with £348 million of commitments. As of early November, £221 million had been invested, “predominantly (into) houses and schools,” said Mr. Weston.