“Fund managers need a more standardized approach to measuring the social and environmental benefits of impact strategies,” says Wouter Plantenga of JTC.
As governments look to stimulate recovery, impact investment funds have growth potential as managers seek to do good while generating returns. Wouter Plantenga, ICS Head of Group Client Services at JTC, explains that a consistent set of impact measurements, combined with best-in-class technology will give funds an edge.
What strategies are being developed for impact investments?
We observe many new entrants – including spinouts from large managers – who are much more impact-focused. They have to differentiate themselves through their investment strategies. Given their position as emerging managers, they are much more inclined to think of impact as a real differentiator. Impact investing is really part of the specialty financial administration sector and there are a broad range of strategies you can deploy. We have seen funds focused on affordable or workforce housing, as well as education. What everyone is getting to grips with is the concept of impact investing around the strategy. There are general principles, but the managers still tailor them to their own specific strategies. So, everybody is interpreting and specializing impact their own way.
How has COVID-19 affected impact investing?
In the short term there are a couple of factors that may be having an impact. First, it can be more difficult for managers to carry out proper due diligence, which by extension would have an effect on capital flow. Second, the economic set-back caused by the pandemic combined with uncertain political climate in an election year has caused some investors to be more cautious. I think that these factors are affecting the capital directed to impact investing – as it is across the alternatives space.
But from a longer-term perspective, impact investing, which really takes into account job creation and affordable housing concerns, can become a catalyst for driving the recovery from the pandemic. Managers have significant dry powder available that can contribute meaningfully to the recovery. They are conscious that undoubted opportunities are an available route to take, but they are also considering how they can make positive social and environment outcomes.
What solutions have you developed for impact investments?
In April, JTC acquired NES Financial, a Silicon Valley-based fintech company, and market leader in fund administration for both the Opportunity Zones initiative and EB-5 program. Together, we help the two impact-focused initiatives do the good they are intended to do. As a result, having purpose-built technology really allows impact measurement to be a meaningful part of what managers can regularly monitor and report for its investors. For example, JTC Americas, Formerly NES Financial, includes economic and social impact reporting as part of its Opportunity Zone Administration Solution.
Fund managers and their investors can establish a community baseline on key metrics prior to investment, project the economic and social impact on the community based on the specific attributes of the investment, and track the progress towards those projections as the project develops.
JTC Americas is continuing to work in collaboration with Howard W Buffett and his advisory firm, Global Impact LLC, by incorporating Impact Rate of Return®, or iRR®. iRR® serves as a key performance indicator enabling organizations to consistently calculate and report how efficiently their investments deliver social and environmental impact. The impact investment report is still usually separate from the financial report. At some point in the future, we will have impact-weighted accounting measurements built into the financial reports, so managers and investors area able to translate impact investing data into measurable monetized figures that can be added to financial statements.
To read the full article on “Why Impact Metrics Matter,” click here.
Read more about impact investments by visiting our Impact Funds Resource Center!