At our recent Impact Investing Forum, experts discussed how understanding the diversity of social impact investors is key to fundraising.
Social impact capital can be a bit of a mystery. While thought leaders like JTC Americas have pioneered methods for measuring and tracking social impact, there isn’t a lot of agreement about what social impact is or how to quantify it. How do funds attract these investors, given that there isn’t an easy way to demonstrate what success looks like?
JTC Americas and Akerman took on this question, and the larger issue of social impact capital, at a recent event, Leadership in Social Impact Investing: Attracting Capital and Growing the Industry, where two panels of industry experts discussed the most pressing issues surrounding social impact capital.
The first panel focused on common sources of social impact capital and what investors are really looking for. The panelists came from a diverse group of industry stakeholders, including Reid Thomas, Chief Revenue Officer and Managing Director, JTC Americas, Glenn Blumhorst, President and CEO, National Peace Corps Association, Neli Vazquez Rowland, Co-Founder and President, A Safe Haven Foundation, Benjamin J. Bornstein, Managing Director, Arctaris Impact Investors, and David Dishly, CEO, LMXD.
The panelists had a range of perspectives on the nature of social impact and how they define it, but there were certain things they agreed on: that social impact investors come from many backgrounds and invest for a variety of reasons, and if you want to raise social impact capital, you have to cater to all of its sources.
Some of the speakers had very telling insights about what different types of social impact investors are looking for and how to position a fund for success, most notably in the ways the processes typically handled by third-party fund administrators can make all the difference. Here are a few (though not all) of the capital sources that were discussed and how a fund administrator like JTC Americas can play an important part:
We’ve discussed before how institutional investors still make up the largest portion of ESG investors, so if you’re trying to raise capital for a social impact project, this group is the first one to cater to.
Benjamin J. Bornstein, Managing Director, Arctaris Impact Investors, spoke about how working with the right third-party service providers can help when fundraising from institutional investors. “It’s paramount to have an A+ team of service providers once you get beyond the launch stage,” he said. This is true not only because it helps fund managers to focus on raising and deploying capital, but because it provides peace of mind to investors looking at the fund.
“Every due diligence questionnaire you get from an institutional investor is asking about the types of services that a JTC can provide, or an Akerman can provide.” That’s why Arctaris works with JTC Americas: not only do our solutions help their processes, they also prove to institutional investors that the fund is equipped to protect their data and their capital once its invested.
As ESG becomes more ubiquitous, funds that can demonstrate their commitment to ESG have the opportunity to attract impact investors: those who want to put their money toward doing good in their communities. Because some funds have lagged in this space, funds with a clear focus on social impact can take advantage.
“I think there have been some shortcomings in the mutual fund arena and in the corporate arena as to how exactly ESG scores are being measured,” said Bornstein, “so finding that new innovative manager that can really accomplish some of the sustainable living-wage job targets,” and other forms of social or racial equity impact targets, can attract broker/dealers and high net worth individuals looking for solid impact investments.
The key, added David Dishly, CEO of LMXD, is that not all impact investors think alike: some care deeply about impact and want to see real evidence of the effect their investments are having, while others, though appreciate of impact, are really there for returns. To make sure everyone is satisfied, his firm has to cater to the former group when it comes to reporting.
“We tend to orient our reporting and orientation most specifically toward not the least common denominator, but the highest common denominator – basically the greatest social impact investor of our group, we develop our knowledge and organize ourselves around meeting their needs.” By generating reports that will satisfy the most demanding impact investors, they ensure there’s no one who won’t be satisfied with what they’re providing.
This brings us to a hotly-debated group of investors: Millennials. It’s long been assumed that this generation will care more about impact, to the point where they’ll forego returns in order to achieve a desired impact. However, for managers like Bornstein, there’s no need to bet on the fact that Millennials will sacrifice returns for impact. Instead, he said, firms should concentrate on doing both.
“I do not believe it’s likely to be a successful pitch to say, ‘hey, we’re having great impact, but the returns are sub-par,’” said Bornstein. “You can’t target your marketing, in my view, only to Millennials and the new generation. I think one will find that there is wide acceptance – as long as you demonstrate attractive return profiles – in the broader investment community.”
Reid Thomas of JTC Americas summed it up thusly: “Investors have different passions, so it’s likely impossible to have one-size fits all.” The biggest issue surrounding social impact, Thomas noted, is that “there really are no standards in terms of reporting.” As our expert panel recommended, you need to demonstrate returns, but also need to cater to the most demanding impact investors, all while proving to institutional investors that you’re at a stage where you can handle their evolved needs.
That’s where a service provider like JTC Americas comes in. As a leader in the impact/ESG space, we’ve built our solutions on industry-leading technology. Our award-winning eSTAC technology platform allows for 24/7 monitoring, custom reports, and impact tracking. We’ve also pioneered methods for comparing impact across investments with different goals. JTC was awarded the “Fund Administration: ESG” prize at the 2021 Drawdown Awards.
Social impact investors have varied goals, and because social impact capital is so competitive and its sources so diverse, you need to prove yourself on all fronts, including impact, returns, and compliance with government tax incentive programs. In the second panel of the webinar, the participants took a deep look at public-private partnerships and how compliance in qualifying for tax-incentive programs is vital in ensuring returns for investors.
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