Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
• Unique set of investment/risk management skills
- A growing number of professionals will define themselves by their expertise in
the sector
• Organizational structures to accommodate this skillset
- Sell-side experts in the sector will build space for themselves within
organizational structures of their businesses
- Buy-side organizations will begin to allocate capital and hire investment
specialists in the sector
• Industry organizations, associations and education
- Networks, conferences, education and resources will be built to address the
new group of experts in the field
• Development of standardized metrics, benchmarks, and/or ratings
- Risk and return reporting will begin to standardize
- Indices will be created to monitor and benchmark the performance of the sector
- Ratings may be developed to help investors find relative value between
investment prospects
These indicators emerged for hedge funds, emerging markets, commodities and even
structured credit, all of which are groups of alternative assets that channel significant
amounts of capital. Impact investments are also showing each of these signs of being
a burgeoning asset class, as we evidence below.
What makes impact investments an asset class
Impact investments have begun to carve out a niche within the investment portfolios
of a wide range of investor types, but does that make them an asset class? We believe
it does, based on our definition above. We also argue that defining impact investing
as an asset class within the alternative investments space is most likely to lead to the
growth of assets, as observed in the cases of hedge funds, private equity and
commodities. Below, we illustrate how each of the indicators of an asset class is
visible in today’s impact investment market.
Indicator #1: Require a different set of investment/risk management skills
Just as impact investments combine financial and social aims, the impact investor
must be skilled in both investment management and the management of
socially/environmentally-driven endeavors. Initial participants in the market often
came from either a financial background or a non-profit/grant-making background,
and would often possess only one of the two requisite skillsets as a result. Today,
however, impact investing is emerging as a unique discipline as market participants
build the complementary skillsets to their existing experience. Impact investors are
beginning to self-identify (including through the Global Impact Investing Network’s
Investors’ Council), and a clear understanding is emerging about the unique expertise
and professional practice that impact investment involves.
Beyond the financial, social and environmental skills, further skills required for
making impact investments will include:
Structuring complexity
Impact investments access a diverse range of capital sources, each of which will be
accompanied by relatively complex (and often obscure) portfolio targets balancing
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