Impact Investments growing in Asia

Eden Strategy Institute at the Institutional Investors APAC Summit

The third annual Institutional Investors APAC Summit was held in Macao, China from October 29 – 31, 2012. Organised by Marcus Evans, this occasion that brought together institutional investors, international fund managers, and consultants from across the region for a focused discussion of new drivers shaping institutional asset allocations.

This prestigious by-invitation only event featured world-class speakers such as Mr. Cy Huang, Chairman of the Taiwan M&A Private Equity Council, Mr. David Carbon, Chief Economist of DBS Bank, Mr. Hiromi Yamaoka, Deputy Director General of the Bank of Japan, and Dr. Marc Faber, Editor of The Gloom, Boom & Doom Report.

Eden Strategy Institute’s Partner Mr. Calvin Chu Yee Ming was invited to speak in its Alternative Investments Forum on Impact Investing.

Speakers at Alternative Investments Forum (R-L): Mr Calvin Chu Yee Ming, Partner, Eden Strategy Institute; Mr. Tomohiko Komada, Head of Private Equity, Sumitomo Mitsui Trust; Dr. Alex Huang, Director, AACSB Accreditation Office College of Management Yuan Ze University; Mr. Jonathan Addison, Investment Manager, Meat Industry Employees Superannuation Fund

Impact Investing is a relatively recent offshoot from the negative screener methodology used in Socially-Responsible Investing; the capacity-building, high involvement management style of Venture Philanthropy; and the responsibility metric-driven approach of Social Venture Capital.

Impact investing takes a view that beneficiaries can be more than recipients of charity, but have the potential to become actual commercial customers and suppliers. Pioneered by Foundations, Development Finance Institutions, and Ultra-High Networth Individuals, impact investments seek to scale private sector solutions to social and environmental challenges.

The Aspen Network of Development Entrepreneurs and Monitor Group report that $120 billion is held today in 200 impact investment funds. JP Morgan estimates that fuelled in particular by government financing programs in countries such as Australia, the EU, India, the UK, and the US, the global impact investment market could reach $1 trillion by 2020.

Impact investments tend to be smaller than other alternative asset classes in size, ranging from $100,000 – $1 million for companies whose market capitalisations typically fall between $10 – 50 million. An Ernst & Young study revealed that most impact investors preferred targets with two to five years in operation. Most investments are made directly, via a mix of debt and equity. Typical returns range from -15% to 15%, depending on the magnitude of social impact created and the risk profile of the investee.

The Aspen Institute reports that Asia is second only to Africa in terms of the geographic focus of impact investors, with Hong Kong and Singapore both rising as impact investment hubs for Asia.

Despite some barriers to growth such as high due diligence and management costs, a mismatch in return expectations, and a lack of strong Social Enterprises to be invested in, Eden believes in the long-term potential of this asset class in Asia.

“Several success factors remain missing in the impact investing ecosystem, such as a strong regulator, comprehensive credit ratings, and liquidity providers such as funds of funds, brokers, market makers, and stock exchanges. However, we have observed in a few short years how impact investments have already created 24,000 jobs that have generated $1.4 billion in revenue to benefit eight million constituents,” explained Mr. Chu.

“Impact investments represent a critical financial innovation that will spur innovation among social enterprises. They constitute five per cent of investor portfolios today, and we believe that this should and will double within the next decade,” he said.

Marcus Evans Executive Producer Ms. Morgane Stein commented on Eden’s participation.

“Calvin highly contributed to the success of our event by actively participating in our panel discussion, providing fresh insights on alternative investments. His inputs on sustainable solutions have been truly valuable and it has been a pleasure to work with Calvin on that project. I recommend Calvin to anyone looking at original options for supporting social businesses,” she said.