Purpose-Driven Investing Steps Out of the Shadows in Asia
WHY YOU SHOULD CARE
This shift could help the region take on socioeconomic challenges that hobble its growth.
By Laura Noonan
Asia’s rich are finally getting serious about channeling more of their massive wealth into impact investing — as long as they can find projects offering market rates of return in countries and industries close to their hearts.
Despite boasting more billionaires than any other region in the world and a raft of socioeconomic and environmental challenges at home, Asia has remained a peripheral player in the impact-investment world. Just 13 percent of the $114 billion funding tracked by the Global Impact Investing Network in 2016 found its way to Asia, according to GIIN’s latest annual investor survey, which, although not exhaustive, offers the most comprehensive data available.
GIIN’s figures actually overstate Asians’ involvement in impact investing, a sector that covers everything from projects to alleviate poverty to job creation in marginalized areas, offering financial services to the unbanked and tackling environmental problems. “Historically, we’ve seen a lot of capital flow from North America and Europe toward Asia,” says Abhilash Mudaliar, GIIN’s director of research, noting that Asians themselves have shied away from the market.
Now, Mudaliar and other experts say the market is changing. GIIN’s research shows impact investing in eastern and southeast Asia grew by more than 25 percent over the three years to 2016.
At the moment, we are going through this inflection.
Joost Bilkes, Credit Suisse
At Credit Suisse, the third largest private bank operating in Asia, wealthy individuals from Asia-Pacific put $55 million into its maiden impact-investment fund launched in partnership with UOB Venture Management in 2016. These clients are eagerly awaiting another round, according to Joost Bilkes, who is responsible for the bank’s Asia-Pacific impact investing. “I really feel that, at the moment, we are going through this inflection,” he says, referring to the growing appetite for impact investing in the region.
Last year, Singapore’s DBS, one of Asia-Pacific’s largest banks, offered its first ever impact investment to private banking clients who went on to buy 60 percent of the $8 million Women’s Livelihood Bond created by the Impact Investment Exchange (IIX). The IIX was founded to develop the world’s first listed exchange for impact-investing companies, but now spends most of its time on other impact-investing work, including a private placement platform and making impactful firms “investment ready.” It is already talking to DBS and other banks about further fund-raisings.
“There’s appetite there; it’s just a question of how to tap that demand,” says IIX’s managing director Robert Kraybill, who hopes to raise $100 million through a second Women’s Livelihood Bond later this year.
Bankers, investors and other experts offer various reasons for impact investing’s ascendancy in Asia-Pacific, including the natural maturing of Asia’s relatively young wealth market, and the growing influence of a next generation with a different outlook on the world.
Yet the common thread that comes up in every conversation around impact investing is the opportunity — and necessity — to make money.
“We’re very clear that we are focusing on market rate returns — that’s a key, key piece,” says Bilkes. “If you want to solve the really major issues that we’re facing today — pollution, poverty, underdeveloped and unsustainable supply chain and so on — we have to appeal to the investment portfolios of our client base. That is where we can get scale. We can only attract those assets if we can show a market rate return.”
Mudaliar says that tackling the “misconception that impact investing” cannot secure market returns is a priority for GIIN.
Shuyin Tang, partner at Asia-based impact-investment house Patamar Capital, says Asia offers superior returns compared to impact investing in other regions because of “the size of the population and the macro outlook.”
“Despite all the Asian Tiger talk, there are still some really big social problems to be solved,” she adds. “Asia really enables highly scalable solutions.”
Those “highly scalable” returns are the reason that India is the single biggest market that Michael Schlein invested in with Accion, his global nonprofit impact-investment firm. “There’s no trade-off at all. There’s huge social impact and huge financial returns,” he says. Big commercial businesses are also investing, including Google’s Tez, an app that has enabled Indian street vendors and other micro businesses to make low-cost or free digital payments straight to their bank accounts.
Unlike their peers in Europe or the United States, Asia’s burgeoning cadre of impact investors want to operate in markets that they have a connection to. “Close to home is extremely important,” says Bilkes, adding that Credit Suisse identified “affinity and proximity” as one of the main reasons Asia-Pacific clients did less impact investing over the past decade than Europeans or Americans.
Asian entrepreneurs are particularly motivated to develop basic infrastructure, education, financial services and health care in markets that are important to their family businesses. Addressing global problems like man-made climate change are lower down the agenda, according to Bilkes.
Bilkes says that it’s a “no-brainer” that Asia-Pacific will soon represent a bigger percentage of the global impact investing wallet, based on the economic and social environment. He can see Asia taking “at least a third” of global impact-investing spending — up from GIIN’s currently estimated 13 percent — “and we would still be under-invested” compared to the potential market.
Tang is more cautious. “People [in Asia] are very receptive to the idea and beginning to experiment. We’re moving in the right direction, but I wouldn’t say the floodgates are open by any stretch of the imagination.”
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