A review: Delio’s impact investing roundtable

Our most recent roundtable event centred around the theme of impact investing in private markets. We primarily focused on the subject of raising capital for impact investments from ultra-high net worth (UHNW) and family office investors which sparked some very interesting sub-topics of discussion.

Check out the recap of the event below and don’t hesitate to get in touch if you have any questions.

How are our panel drawing (U)HNW and family office investors into impact?

Our panel agreed that the Covid-19 pandemic has fuelled a major shift in attitude towards investments, with individuals now seeing that they’re able to invest with purpose through deploying their capital into meaningful projects whilst also achieving good returns. This perspective contrasts with more traditional attitudes which have often viewed impact investing as being more akin to charitable giving or philanthropic activity that didn’t yield the returns one would expect from a normal portfolio or investment.

Another observation was that it is becoming easier to engage individuals when there’s an active next generation also involved in the process. For example, where there’s succession planning or legacy building, the conversation around impact investing is already happening at quite a sophisticated level and families that are willing to entrust the next generation on this mandate are leagues ahead of others.

However, when helping these arguably more forward-thinking families and individuals, gaps can be found in investor knowledge and experience. Although on the whole, they do have a thorough understanding of elements such as climate change, circular economy, the ESG agenda and the general need to deploy their capital into these key areas, they do not always possess the knowledge around how to assess an impact-related deal. As a result, one panellist explained that investors don’t always have sufficient knowledge of the frameworks surrounding impact deals and how these can be built into investment pieces and due diligence processes.

Another panellist suggested that one of the biggest challenges to piquing investors’ interest in impact opportunities comes when the investor has typically been more focussed on public markets; they argued that these investors require a fair degree of convincing to shift their investment strategy to both impact and private markets at the same time. Here, it’s not only a category mindset shift that is required but also a change in their approach to risk, all of which adds a considerable amount of additional work.

The challenges of utilising independent financial advisors (IFAs)

Panellists agreed that from their experience, what was expected to be one of the biggest challenges of working with IFAs – the fees – turned out to have not been the biggest barrier. Instead, issues more often arise from culture change, as a result of having to move away from their comfort zone and experience of regulated funds and major listed markets. One panellist explained that they often need to educate IFAs on the fact that there are other ways of assessing potential investments for their investors, apart from looking at the measure of volatility and track records. In addition, more education is required around the different levels of sustainable investments, given that many do not know the true differences between ESG and impact opportunities.

In order to alleviate this barrier, one panellist explained that faith and trust should be bestowed upon the younger generation of investors, whose desire to move towards more impact-focused deals are helping to contribute to the education of IFAs.

The requirement for more comprehensive data around impact investing

As we touched on above, defining what ‘impact’ actually is has caused a significant debate between many of the new players in the industry. Common questions raised include what is ‘impact’, what is being offered and is the focus on developed markets or emerging markets? It is therefore important to establish clear definitions and information around deals in order to ensure that accurate comparisons can be made across the board.

Impact measurement, management and reporting are all key parts of growing this area of investing. The goal is to generate sufficient data around impact opportunities to mirror the certainty and comparability of the financial information available; if this can be achieved, these metrics can create credibility for the impact investment space over time.

However, this requirement for robust, reportable metrics must be contextualised given that it may not always be possible or reasonable to expect this type of data from start-up businesses. Given that they may not be as commercially active as larger businesses within the industry, it could be significantly more difficult for these early-stage companies to invest in the tools that they would need to do this.

The overarching theme that emerged from our discussion was that despite being a relatively new option for investors, the interest in impact opportunities has already accelerated significantly in a very short period of time. This progress is likely only to continue as the aftermaths of the Covid-19 pandemic continue to be felt and the younger generation of investors reassess the ways in which they want to leverage their wealth. Importantly though, investors are not simply looking to ‘give their money away’ in order to take better care of our planet – there remains a strong desire to achieve a high level of return at the same time.