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Impact investing – Australian market in 2014

A reader, Josh, sent us the following question, and we asked Ian Learmonth of Social Ventures Australia (SVA), a pioneer in Social Benefit Bonds, to respond:

“Hi, can you tell me about Impact Investment, how do I do this, and where do I go?"

‘Impact investing’ refers to investment with the intention to achieve both a positive social, cultural or environmental benefit and some measure of financial return. Global and local predictions say the market could reach 1-2% of funds under management in the coming decade, translating to a figure of around $30 billion in the Australian context.

While there have been some challenges in unlocking the potential of this new market in Australia, there are a number of exciting signs that the market is well on its way to becoming a thriving and trusted asset class.

Socially-minded investors, including a number of super funds, banks, foundations, trusts, private ancillary funds and individuals have already backed the market by investing money in current impact investing products. In the case of the Newpin Social Benefit Bond and SVA’s Social Impact Fund, they have received returns of around 7% pa. Just last month NAB pledged $1 million to help build the market in Australia, and QBE made a US$100 million commitment to invest in global impact investing opportunities such as Social Impact Bonds (SIBs).

In Australia SVA, Foresters and Social Enterprise Finance Australia (SEFA) each manage funds that provide loans and equity investments to social enterprises, seed funded from a combination of government and private money. There are currently seven businesses in the SVA fund’s portfolio and our pipeline has looked increasingly strong over the past six months. In a recent deal the Impact Investment Group, based in Melbourne, closed a $95 million property deal in Geelong generating financial, environmental and social benefits to the community.

The growth of organisations like the School for Social Entrepreneurs, Social Traders and Small Giants is also encouraging, meeting a significant need on the supply side of the investment equation through building the business planning, operations, governance and measurement expertise of the social organisations, so that they can become ‘investment ready’ and attract the type of funding offered by more established funds.

Finally, impact investing has received attention in the interim report of the Financial Systems Inquiry, showing that the structural changes are beginning to take shape. The establishment of Impact Investing Australia as an advocacy organisation should generate greater strategic alignment between government, investors, investees and intermediaries.

At SVA we’ve had a front row seat to both early successes and some of the trials involved in getting the market up and running. And while issues like the difficulty of matching supply and demand, the need for more suitable legal structures, and limits to the large scale deals available do present challenges, we’re confident there is requisite enthusiasm among stakeholders to construct a way forward.

Impact investing pioneer Sir Ronald Cohen likens the state of the market today to that of the venture capital market in the 1970s. In his words “It could take another 10 to 20 years for demand for capital to fully respond to increased supply.” Recent developments show that we’re heading in the right direction.

 

Ian Learmonth is Executive Director at Social Ventures Australia (SVA) responsible for heading up its Impact Investing team.

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