MICROFINANCE PUBLICATION WRAP-UP: “Spotlight on the Market, The Impact Investor Study;” by Yasemin Saltuk, Ali El Idrissi; published by J.P. Morgan Global Social Finance, Global Impact Investing Network

Spotlight on the Market, The Impact Investor Study;” published by J.P. Morgan Global Social Finance and Global Impact Investing Network; May 2014; 52 pages; available at http://www.jpmorganchase.com/corporate/socialfinance/document/140502-Spotlight_on_the_market-FINAL.pdf

This study, prepared by US-based financial institution J.P. Morgan and US-based nonprofit Global Impact Investing Network (GIIN), details the findings of the organizations’ fourth annual survey about “impact investments,” which are defined as those made “with the intention to generate social and environmental impact alongside a financial return.”

The survey was distributed to 125 investors, each managing a portfolio of impact investments of at least USD 10 million, including fund managers, banks, development finance organizations and foundations. The survey did not include individual investors. Eighty percent of participating organizations were headquartered in the United States or Europe. Seventy percent of the impact investments disclosed by all respondents were deployed in emerging markets, with the remainder located in developed countries. Approximately half of impact investors targeted investment opportunities with “competitive, market rate returns”, while the rest of the respondents expected returns below market rate. Respondents also indicated their primary motivations for investing in impact projects were – in descending order – commitment to invest responsibly, efficiency in meeting impact goals and response to client demand.

The respondents collectively managed USD 46 billion in impact investments as of early 2014. The investments were diversified as follows: 21 percent in microfinance, 21 percent in financial services other than microfinance, 11 percent in energy and 8 percent in housing. With regard to the preferred development stage of companies in which to invest, 89 percent of respondents preferred “post-venture” investments rather than “venture stage businesses.” Sixty-two percent of the capital invested in impact projects was in the form of debt instruments, including private debt, public debt and equity-like debt.

Ninety-eight percent of respondents stated that they use metrics to evaluate the environmental and social impacts of their investments. Twenty-seven percent deemed standardized metrics “very important” for industry development, 44 percent found them “important” and 27 percent deemed them “somewhat important.”

The respondents reported satisfaction with the performance of their impact investments. Twenty percent exceeded their impact expectations, and 16 percent reported outperforming financial return targets. Only 1 percent of respondents reported underperformance relative to impact expectations, and 16 percent experienced underperformance compared to financial targets. The three most significant reported risks were “business model execution and management risk,” “liquidity and exit risk” and “market demand and competition risk.”

Two additional challenges identified by the respondents were a “lack of appropriate capital across the risk/return spectrum” and a “shortage of high quality investment opportunities with track record.” Nonetheless, respondents found that the impact investment sector improved in the areas of “collaboration amongst investors, usage of impact measurement standards, availability of investment opportunities and the number of intermediaries” compared with 2013. Investors also noted that they would welcome government support of impact investments in the form of policies that intended to improve the risk/return profile of target projects such as “through credit enhancement or tax credits or subsidies.”

Impact investors reported that they plan to increase their collective commitments to such projects to USD 12.7 billion in 2014 from USD 10.6 billion in 2013. In the future, the highest number of investors plan to increase their investments in Sub-Saharan Africa, East and Southeast Asia, and South Asia. The most sought-after sectors for impact investments are food and agriculture, healthcare and financial services excluding microfinance.

By Alíz Crowley, Research Associate

About J.P. Morgan

J.P. Morgan Chase is a US-based global financial services firm involved in investment banking, consumer financial services, small-business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, J.P. Morgan Chase & Company serves consumers in the United States and corporate, institutional and government clients globally. In 2000, Chase Manhattan Bank acquired J.P. Morgan, making the company the investment arm of J.P. Morgan Chase. As of December 2013, the company reported total assets of USD 2.4 trillion, total deposits of USD 1.3 trillion, return on equity (ROE) of 9 percent and return on assets (ROA) of 0.75 percent.

About Global Impact Investing Network (GIIN)

The Global Impact Investing Network (GIIN) is a nonprofit organization based in New York City that is dedicated to increasing the effectiveness of impact investing, which it defines as for-profit investment intended to solve social and environmental problems. The members of GIIN work to increase “the level and effectiveness of capital that is supporting market-based solutions to social and environmental problems.” GIIN’s Investor Council consists of 57 impact investors as of 2014.

Sources and Additional Resources

J.P. Morgan Global Social Finance and Global Impact Investing Network: Spotlight on the Market, The Impact Investor Study

MicroCapital, November 19, 2013, JP Morgan Chase “Catalyst for Growth” Reports Improved Performance of Small and Medium-Sized Enterprises (SMEs) in South Africa

MicroCapital, October 1, 2013, Former JP Morgan Asset Management Chairman Unveils $40m Impact Investment Fund, Charioteer-Fund I, to Support Skill Development, Microenterprises in India

MicroCapital, March 19, 2013, “Perspectives on Progress: The Impact Investor Survey;” by Yasemin Saltuk; published by JP Morgan and the Global Impact Investing Network (GIIN)

MicroCapital Universe Profile: J.P. Morgan

MicroCapital Universe Profile: Global Impact Investing Network (GIIN)

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at http://www.microcapital.org/products-page/

 

 

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