How impact investing can reach the mainstream
Monday, November 28, 2016
Nearly ten years have passed since a coalition of philanthropists and investors introduced the financial-services industry to impact investing, a practice distinguished by its aim to generate social and environmental benefits alongside financial returns. In that time, impact-investing funds have amassed more than $77 billion in assets under management,1and prominent investment managers—Bain Capital, BlackRock, Credit Suisse, Goldman Sachs, and JPMorgan Chase, to name a few—have added impact products to their portfolios.
As the impact-investing business has expanded, it has developed some growing pains. Impact-fund managers, who invest mainly in privately held businesses, are having trouble finding companies that are ready to put large amounts of capital to work. Evaluating those companies has proven challenging, too. They are highly diverse, spanning various sectors, levels of risk, and expected returns. And the numerous standards for measuring social and environmental impact can be overwhelming, even for industry specialists.
For these reasons, fund managers are able to market a wide array of products as impact investments. Investors, however, find these options confusing to sort through. Some products aim for below-market risk-adjusted returns, which is satisfactory for certain investors.