So-called “impact investments” are poised for strong growth in the years ahead, according to new research from Greenwich Associates and American Century Investments.
According to the firms’ research — which is based on interviews with more than 150 American financial advisors who work with high net-worth and individual investors, 75 institutional investors in the U.S. and more than 50 professional buyers for intermediary distribution platforms — it’s widely expected that demand for impact investments will grow over the next several years.
For example, the report finds that 80% of advisors believe their clients will be increasing their allocations to impact investments in the next three years. The research also found that one-third of institutional investors plan to increase their allocations to impact investments, with one-quarter planning to boost allocations by more than 10%. In addition, three-quarters of platforms also expect allocations to impact investments to rise.
“There is a clear — and growing — desire among institutional investors to use their investment pools to support both the financial and societal goals of participants, organizations and stakeholders,” says Greenwich Associates consultant Andrew McCollum.
This belief in aligning investments with personal values and social goals “is being embraced by investors of all types, setting the stage for continued expansion of impact investing throughout global financial markets,” the research states.
Yet, despite the strong demand for impact investments, the research also found that the asset class is not yet well defined and that attitudes toward impact investments vary widely.
For example, the research found that although most expect impact investments to deliver at least market-rate returns, 40% of corporate pension funds and 44% of advisors say “they would be willing to accept lower returns in order to achieve a positive social impact.” Conversely, public pension funds and defined-contribution pension plans said that superior investment performance is a requirement.
The research also notes that impact investing is still in its early stages. Says McCollum: “The definition and best practices of impact investing will take shape and solidify as the category attracts new participants and assets. During this maturation phase, investors will benefit by working with intermediaries and asset managers willing to help educate them about impact investing and define the proper role for the category within their portfolios.”
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