Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
IIG launches its $70m Impact Fund
Impact Investment Group (IIG) announced the launch of its new $70 million impact investment fund, designed to balance profit and purpose with a sustainable and socially conscious investment thesis. Inside Investor’s Ishan Dan spoke with IIG CEO and Co-Fund Manager Daniel Madhavan about the fund and his his career at Impact Investment Group.
For those that don’t know, IIG was founded in 2013 and has grown to serve more than 500 investors with $650 million of funds under management. The group has seen growing demand from advisers and private investors looking for impact investment options to help with diversification, quarterly yield, liquidity and attractive risk-adjusted returns. Impact investments meaning those that deliver both a social good and of course profits for investors.
Below is a transcript of the interview.
Daniel, firstly a bit about yourself. If you can give us a background summary on your career so far?
I came to impact investing after learning my trade in mainstream finance. I am the oldest kid (of three) born into immigrant families on both sides. I grew up in Pakenham, went to the local high school and then on to study finance at Monash. My first real job was at JBWere, answering phones in the call centre. I then built an understanding of financial advice, and investment strategy from the ground up as an Associate Adviser, I ran NSW, was COO and left in 2014 after an 8-month stint as Acting CEO. I discovered impact investing and was immediately drawn to the opportunity to use my experience for something with more purpose. I was also intrigued and energised by the idea of using capital to support better outcomes for people and the planet.
You made the move from the private sector into impact investing, what attracted you to the impact investing sector?
When I left JBWere, I knew that finance skills and investment knowledge were valuable and useful, but I also got really interested in both the broader context for finance and a larger responsibility. I believe the finance industry can take for what activities get capital. So, as well as helping individual investors and the people making decisions about financial risk and return, it was starting to become clear that you could also integrate environmental and social considerations into decision making. I learned a lot from people like Rosemary Addis and other leaders in the sector, and it was remarkably clear to me that this field will grow, because it should, and because there’s a trend line going in one direction only.
What drives you to keep growing IIG?
There’s so much to do. Impact investments are maybe 1% of the Australian funds under management sector, but when you poll investors and/or superannuation account holders (the general public), they want their funds to be invested in line with their values. At the very least people really don’t like their money supporting environmental destruction or slavery, but still a sizeable majority actually want their funds invested for positive outcomes: like building out clean energy systems, or investing in startups that have positive environmental impacts. IIG and others in the impact investment community have already shown, over the last seven years, that there are plenty of investible opportunities where you can meet your financial goals alongside social and environmental benefits. So the record is there, the demand is there, the opportunities are there.
What is the relationship with the Liberman family?
So IIG is wholly owned by the family office of Berry Liberman and Danny Almagor.
A bit about your team? Experience, specialty, goals?
It’s pretty varied team of around 30 people in Sydney and Melbourne. He won’t like me saying this, but our head of renewable energy infrastructure, Lane Crockett, is known in the industry as Mr Renewables. He’s been in energy infrastructure for more than 25 years. Our chief impact officer Dr Erin Kuo had a background in finance, then did her PhD in measuring non-financial value. Our head of strategy, Jeremy Burke, was at the UK’s Green Investment Bank where he was part of deploying around 3 billion pounds of investment into renewables. Most of our team have found their way to impact investing after starting their careers in traditional finance, or funds management, or accounting, or what have you. Some of the younger people have come straight into impact, but for the more experienced team, that option didn’t really exist when they were starting out.
A timeline of events perhaps for IIG?
The business started out managing green property assets back in 2013. It has come a very long way since then. The most recent green building completion was the tallest engineered timber office building in Australia. It’s the headquarters of Aurecon; 25 King in Brisbane. We launched our first solar fund in 2016, and a few months later our first VC fund, Giant Leap. Last year we won our first superannuation mandate, with WA Super, which is about to become part of Aware Super.
What is IIGs long-term vision?
We want to be part of demonstrating how finance can be a force for good. If you drill down, we also have visions for the systems we work in, we are helping to make cities sustainable, make our energy systems 100% renewable, accessible and affordable. Some of our investments are in service of empowering people, and some are aimed to regenerate land, air and water.
What are the different divisions in the company i.e. Venture capital etc?
We’ve got the normal business functions; strong accounting, legal, operations, communications and investor services, then there are the ‘capital’ teams; venture capital, renewable energy infrastructure, and real estate, and a team that works on the diversified products.
Your latest fund, tell us a bit about that? How does it fit with your renewable and property assets?
The Impact Alternatives Fund is designed to meet the needs we were hearing from a lot of investors and advisers. They’re looking for a fund that has impact but also offers strong risk adjusted returns and some other key features such as; diversification, income, and liquidity. Especially now, they’re looking either to deploy cash they’ve pulled out of stocks, bonds and property that they think are fully valued, or even over-valued. So this is a genuine “alternatives” product, targeting low correlation with those other parts of a traditional portfolio. It’s also absolutely an environmental and social impact fund. The structure is a fund of funds. Each of the Impact Alternatives Funds six investment strategies has inherent positive social or environmental impact.
Do you think the future will be impact investing?
I think a growing part of the future will be impact investing. Really, impact is a lens you can apply across all your investment decisions; from your mortgage provider to your cash account, to your shareholdings. But we are already seeing more awareness of the causations between finance and the rest of the world. There’s more information available than ever before, and growing interest from investors, whether they’re wholesale investors, or getting their first jobs and opening a superannuation account.
What type of investor is this fund targeting?
It’s for wholesale investors only. But within that, it’s designed for a broad range of investors, and should fit into a broad range of portfolios. We expect that it’ll be the first “impact investment” for a lot of clients.
How can one become involved?
We’re running information presentations now, and the high level information for the Impact Alternatives Fund is on our website. You can leave your details to download the information memorandum, or contact our investor services team.
What is an example of an underlying asset included in this offering?
I’m really excited by a fixed interest loan we’ve negotiated that will help build a massive solar farm in South Australia that’s part of a wider story about the greening industry. We locked in terms a while ago, and since then the projects risk-return profile has only improved. There are also interesting opportunities around housing for people with disabilities, which is really important for improving their quality of life and also has diversified revenue streams.
Fund specifics – Return objective? Income? Correlation?
The overall return target is 6-10% with a quarterly yield of 3-5%. The key being that it will have low correlation to public markets, bonds and property.
When does the fund close?
The fund will close to new investment as soon as we reach our maximum capacity of $70m. Once closed, we’re not guaranteeing that the fund will re-open any time soon.
Thank Daniel for taking the time to go through your career, the company and your new fund. Good luck and all the best with your new endeavour.
