Increased Investment as well as Diversification across Impact Themes

As we start off the New Year, TriLinc Global will be discussing notable trends from 2015 that we see as relevant to the development and growth of the impact investing sector in 2016 and beyond. This is the final post in a four-part series.

In line with better ESG scoring and standardization, research on asset allocation in impact investing highlights a trend among asset owners and investment managers to both increase the investment volume and broaden the thematic focus of their portfolios. In Eyes on the Horizon: The Impact Investor Survey, co-produced in 2015 by JPMorgan Chase and the Global Impact Investing Network, 67 percent of survey participants indicated that they expected to increase their allocations to impact investments in 2015, totaling $12.2 billion in collective assets. Similarly, respondents projected an increase in sector diversification in their portfolio across the 13 sectors identified for impact investment. In terms of key sector projections, 26 percent of institutional investor survey participants said they expected to increase their exposure to energy, food and agriculture, while roughly 24 percent of respondents planned to increase their investments in healthcare and education. This projected asset allocation shift parallels a reduction in the growth rate of the microfinance and housing sectors, an indication that as the impact investing industry continues to mature, investors have more options and are expanding beyond the impact sectors that were the first to offer market-based investment opportunities.

Further research supports the view that impact fund managers are diversifying impact themes across their portfolios. An analysis of data from ImpactAssetsIA 50, an annual directory of 50 impact investment funds, shows that in 2011, 13 fund managers were solely focused on providing funding to microfinance and financial services, decreasing to only one fund manager exclusively targeting this sector in 2015. On average, in 2015 fund managers had 3.5 different investment focuses, a 60 percent increase from 2011.

In summarizing key impact investing trends and their implications for 2016 and beyond, we believe that an enabling regulatory environment, more investment product choices and better ESG and impact integration are well-aligned to support the sector’s growth. We expect that these factors will incent foundations, pension funds and retail investors to make increasing allocations to impact.  Furthermore, we believe that asset owners and investment managers, with the support of industry thought leaders and ESG service providers, will continue to refine ESG and impact measurement, monitoring and reporting given the increasing body of evidence that these practices contribute to improved investment performance.

We also note that many challenges to mainstreaming impact investing remain, and that overcoming them will require a concerted effort of industry leaders, associations and practitioners. On our own and in collaboration, we must continue creating scalable investment products, working toward uniform ESG integration methodologies, generating risk-adjusted returns, improving liquidity/exits, and educating financial advisors on the market-based, non-concessionary nature of impact investing. TriLinc is committed to its leadership role in helping build a robust, transparent and effective impact industry so that investors can achieve their goals for competitive returns and a better future for our world.

– This post is the final in the four-part series, “Impact Investing: What’s to Come in 2016,” written by Melissa Tickle, TriLinc Global Impact & ESG Analyst.