One-third of the institutional investors plan to increase portfolio allocations to impact investing in the coming three years, according to research carried out by Greenwich Associates and American Century Investments.
Impact investments are a fast-growing category among both institutional and individual investors – despite a lack of consensus about how impact investing should be defined and treated within investment portfolios.
To gain a better understanding of the impact investing trend, Greenwich Associates and American Century Investments interviewed approximately 75 US institutional investors, more than 50 professional buyers at intermediary distribution platforms, and over 150 financial advisers that work with high net worth and individual investors. The results of this research are presented in two new reports Impact Investing: Individual Investors Seeking New Opportunities and Impact Investing: Institutions Awaken to New Possibilities.
One-quarter of those institutions plan to boost allocations by more than 10 per cent. Three-quarters of decision-makers for intermediary platforms and 80 per cent of financial advisers believe client allocations to impact investments will increase in the next three years.
“There is a clear – and growing –desire among institutional investors to use their investment pools to support both the financial and societal goals of participants, organisations and stakeholders,” says Greenwich Associates consultant Andrew McCollum (pictured).
Even amid this growth, the study results reveal that attitudes and perceptions about impact investments vary widely, and that assets of pension funds, not-for-profit endowments and foundations, and individual investors are flowing into a category that is not yet well defined. Investors also vary in their levels of satisfaction with current impact investing efforts.
Perhaps the most striking divergence in perceptions relates to investors’ attitudes about returns. While the vast majority of study participants say they expect impact investments to deliver at least market-rate returns, 40 per cent of corporate pension funds and 44 per cent financial advisers say they would be willing to accept lower returns in order to achieve a positive social impact. Public pension funds and defined contribution plans see superior investment performance as a requirement for investment.
The belief that investments should align with personal values and societal goals is being embraced by investors of all types, setting the stage for continued expansion of impact investing throughout global financial markets.
Despite the rapid growth, impact investing in the US remains in its early stages.
“The definition and best practices of impact investing will take shape and solidify as the category attracts new participants and assets,” says McCollum. “During this maturation phase, investors will benefit by working with intermediaries and asset managers willing to help educate them about impact investing and define the proper role for the category within their portfolios.”