By Ben Thornley
Australia is on the precipice of a period of rapid growth in impact investing
as institutions and individuals become active in the market at a scale more
befitting the country’s role as one of the largest institutional investment
markets.
as institutions and individuals become active in the market at a scale more
befitting the country’s role as one of the largest institutional investment
markets.
As an Australian myself, it has pained me to observe the very real difficulty
of matching a new investment niche to the needs of some of the world’s
largest asset owners – all while lacking access to the sizable pools of more
flexible, bridging capital we see elsewhere from banks, foundations,
insurers, development finance institutions, and family offices.
But after traveling to Sydney in late March for the Impact Investment
Summit Asia-Pacific, I believe the Australian market’s time has come. And
as far as getting to scale is concerned, there are a handful of key players to
watch:
1. Australia’s biggest pension funds: Notwithstanding certain
regulatory pressures, Australia’s large superannuation (“super”) funds
are starting to make moves in impact investing. But more work is
needed to ensure this group is laying the strongest possible
foundation – particularly through the integration of accepted
definitions and alignment to global standards like the Operating
Principles for Impact Investing. There is some confusion about what
impact investing means in Australia, but there are at least two things
it is not: a) concessionary (i.e. it’s clear institutional investors can
generate competitive financial returns through impact investing); and
b) the “social” or “responsible” options provided as an investment
choice to defined contribution super fund members, which include
highly diversified portfolios of primarily public market investments
pursuing myriad sustainability goals.
2. Local intermediaries serving the giant funds: In order to deploy
capital at sufficient scale, the largest super funds will need to invest
globally. However, they will also spur tremendous innovation in
Australia as managers strive to create billion-dollar impact products
that target local and regional businesses, natural assets, housing, and
infrastructure. There will be twists and turns, but the design journey
is one of generational importance to the Australian economy.
3. Small- to medium-sized, mission-driven asset owners: This is an
increasingly engaged group including trusts, foundations, and
specialized investment and retirement platforms, which is prompting
the creation of networks like the Foundations Group for Impact
Investing, modeled after Mission Investors Exchange in the US and
the Social Impact Investors Group in the UK. It is incumbent upon this
group to signal real enthusiasm and demand for impact investing,
which is why the recent Endowments for Impact Challenge has been
so important.
Investing, modeled after Mission Investors Exchange in the US and
the Social Impact Investors Group in the UK. It is incumbent upon this
group to signal real enthusiasm and demand for impact investing,
which is why the recent Endowments for Impact Challenge has been
so important.
4. Investment advisory firms serving mission-driven investors:
Facilitated by Impact Investing Australia, the Endowments for Impact
Challenge invited advisors to present their impact credentials to a
group of participating foundations with $170 million to invest.
Six finalists were chosen to pitch their capabilities at a uniquely
transparent final event held during the Impact Investment Summit.
What it revealed was a group of maturing advisors in Australia that
are well equipped to support mission-driven investors. However,
robust and rapid adoption of impact investing is needed to ensure the
economics pencil out for these advisors and they can make the
necessary investments in their own growth and expertise.
5. Brilliant investment boutiques: As a global investment hub,
Australia has its fair share of bright asset management stars. A good
chunk of their capital comes from outside Australia and there’s no
reason that can’t and shouldn’t continue. In some cases, these firms
may prefer non-Australian LPs given the fee pressures that are unique
to the local market. But they are an important group to watch and will
generate some of the best ideas globally in impact investing. One day
soon they will be big enough for the largest Australian institutions to
take a closer look – which sounds like a flywheel to me.