Impact investing has gained significant momentum in recent years as investors seek to align financial returns with positive social and environmental impact. Major impact investing firms have emerged, along with key players across asset classes contributing to growth. However, the industry faces challenges around measurement, mainstream adoption and perception.
Leading impact investing firms expanding offerings to meet demand
Several large private equity firms have launched multi-billion dollar impact investing funds, including TPG’s Rise Fund, Bain Capital’s Double Impact, and KKR’s Global Impact Fund. These demonstrate growing LP interest and aim to deliver market rate returns alongside impact. Partners Group recently launched an impact fund targeting areas like healthcare, education and financial inclusion across private equity, infrastructure and real estate. These large traditional PE firms entering impact investing lends further credibility.
Pension funds, endowments increasing allocations to impact strategies
Institutional investors like pension funds and endowments are allocating more capital to dedicated impact funds and managers as the field matures. US university endowments have been leaders, with schools like Harvard and Stanford making sizable commitments. Leading US pension funds like CalSTRS and CalPERS have also backed impact managers. Increased institutional investment enables scaling of capital to sectors like clean energy, microfinance and sustainable agriculture.
Development finance institutions pivotal in industry evolution
Development finance institutions (DFIs) like CDC, FMO and IFC have played an essential role in impact investing’s evolution through funding business models like microfinance that serve the poor. Their participation has enabled larger fundraising rounds and given confidence to other commercial investors in high-impact sectors like off-grid solar. DFIs also provide technical assistance to funds and act as anchors/first movers in nascent markets.
Challenges exist around measurement, mainstream adoption
While capital flows have increased, impact measurement remains challenging with no consensus metrics. Confusion also persists around financial returns, with commercial viability mistaken for below market rates. Additionally, retail investor participation remains low to date relative to high net worth and institutions. Thus education is still needed for mainstream adoption.
Impact investing firms and proponents have driven impressive growth, though work is still required to address measurement, perception and adoption challenges before reaching full mainstream scale.