Impact investing is becoming more popular as allocators recognise the return benefits, presenting opportunities for established international finance centres, according to a white paper by Guernsey Finance.
The paper - Redrawing boundaries: How impact investing is making a difference - is based on interviews with managers, investors, law firms and industry experts, and explores some of the regulatory and investor-led drivers behind impact investing. It notes that the asset class is projected to account for one percent ($2 trillion) of globally-invested capital by 2025.
In addition, the paper ‘debunks’ the myth that returns are often compromised in exchange for a social good or advancement. It highlights findings by the Global Impact Investing Network’s Annual Impact Investor Survey which reported that 91 percent of respondents found financial performance was superior in line with expectations, and 98 percent said impact performance was better or on par with expectations.
Returns have been boosted by financial innovation in the sector where financial instruments including social impact bonds, charity bonds and blended finance structures are being used. New players are entering the market including private equity, private debt and venture capital sectors or firms transacting in real assets accounting for the majority of fund managers participating in the space, the paper noted, meaning impact investing is continually changing.
“Impact investing used to be the preserve of HNWIs, private wealth or family offices but we are seeing a broadening of the base. This has happened due to greater awareness of the subject matter and recognition that investors can make risk-adjusted returns through a wide range of products,” commented Justin Sykes, managing director at boutique consultancy Innovest Advisory which focuses on social impact and innovation. “As such, we are seeing private banks, insurance companies and pension funds move into impact investing.”
Kate Clouston, Guernsey Finance deputy chief executive, said: “Any international financial centre looking to build a track record in this space has to be forward-thinking and flexible in its approach and this must be underpinned by strong but amenable regulatory oversight which permits innovation to take hold but displays robust consumer protection and follows best practices and standards.”
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