In the wake of the Hayne Royal Commission, industry funds reigned supreme. It has taken more than five years, but the for-profit funds are finally back in the game as the not for profits increasingly struggle to service members nearing or in retirement.
Central banks have performed admirably to get economies back on track, but a public that is far less-trusting of big institutions and traditional asset classes remains unconvinced. US President Donald Trump’s trade policies are simply fuelling their fears.
Impact investing can ‘ride out’ Trump’s nostrums
A Donald Trump presidency should not derail impact investing that is growing around 20 per cent a year, Ben Thornley (pictured), managing partner and co-founder of the US-based consultancy Tideline, will tell the Impact Investment Summit being held in Sydney this week.
In his address titled Building integrity for institutional scale: International trends in impact investing and a framework for the future, he will argue that although ESG and diversity have been caught up in the political headwinds in the US, impact investing, which constitutes a targeted, affirmative strategy that focusses on best ideas, mega trends and adding alpha, can largely go under the radar.
“While sustainable investing has come under pressure in recent years, impact investing has been a bright spot – a similar trend to Trump’s first term (2017-21).
“The global impact investing market is now approaching $US2 trillion ($AU3.1 trillion) in funds under management and I expect it to reach $US5 trillion ($AU7.9 trillion) by the end this decade.”
Thornley’s confidence in the growing appeal of impact investing is also a product of this market becoming increasingly institutionalised.
“Pension funds now comprise about 30 per cent of the market – a number that was just six per cent five years ago. Their growing influence will help stabilise this market by having it grounded in proven investment themes and strong returns.
“They will look at trends in healthcare, housing, climate technologies, to name but three, and then run the investment story through their conservative investment processes to ensure the numbers stack up. By doing this they are subjecting impact investing to an investment rigour that can only enhance its market credibility.”
In essence, Thornley is arguing impact investing is becoming more mainstream – perhaps even vanilla.
In this environment he sees a growing “opportunity set” outside of the two main markets, the US and Europe, with Australia well placed to play an increasing role as the appeal of impact investing spreads to the Asia-Pacific region – the fastest growing economic region in the world.
“Right now, Australia accounts for about one per cent of this market’s assets. Yet its superannuation industry comprises about 4.5 per cent of the global pension fund market. So, Australia really should be quadrupling its application to impact investing in the coming years.”
Thornley’s optimism is tempered by the realisation that while the market might be more mature, the White House will still cast a shadow over impact investing.
“There are some sectors of the US economy that will be affected. Make no mistake. Those that are dependent on government support, development finance institutions, community finance (lending to low-income communities), and some areas related to climate change will, I think, be affected.
“But it’s worth remembering that most of the market is private, and this capital can invest wherever it wants to. They understand that climate change is not going away, that inequality must be addressed and that a growing middle class in the emerging markets is demanding better access to healthcare, financial services and education.”
He says these are all major mega trends that are driving the growth of the impact investing market, and they present really attractive investment opportunities.
“Impact investing is really a ‘best ideas’ strategy. It’s really about the opportunity side of the equation, it’s very targeted and managers have been generating good returns.
“So, while it would be naive to say the market won’t be affected, I think it will be surprisingly resilient in the face of a Trump White House. Private investors will say ‘sustainability is a great investment and we’re going to keep backing it’. That’s what I think will happen.”
But Thornley does regret that the US under the current administration will relinquish its leadership position in the impact investing space. “We’re seeing it now, investors, particularly in the US, being more reluctant to talk as openly about their commitments to sustainability, for example. But that presents an opportunity for other places to really step up. So, I think it really is an exciting opportunity for Australia.”
