No longer just a fad or passion project for certain members of the investment community, impact investing has become much more widespread and accepted by a wide range of investors, from wealthy individuals to corporations to institutional funds. In fact, the Global Impact Investing Network (GIIN) reported that impact investments accounted for $77.4 billion of assets under management in 2015; it also noted that private debt, private equity, and real estate held the largest percentage of these assets.
Despite the rapid growth and embrace of impact investments across the world of finance, however, they still have not gained traction among hedge funds, which held $3.2 trillion in assets under management in 2015.
Deloitte recently published a report entitled Impact Investing: A Sustainable Strategy for Hedge Funds. As the title suggests, the report outlines several factors influencing the impact investing landscape with respect to the participation of hedge funds, and it suggests that despite certain challenges, there are significant opportunities and considerable potential rewards for hedge funds that pursue impact investing.
The report points out that despite a high degree of public enthusiasm for impact investing, it remains a niche market among hedge funds; in fact, there is no existing hedge fund that is exclusively focused on impact investing. Deloitte sees this as an opportunity and mentions that the “lack of a clear hedge fund leader in impact investing suggests there may be open space for early movers to gain a competitive advantage.”
For hedge funds interested in obtaining such a competitive advantage, the report also presents a list of key considerations, including the need to standardize performance measures of impact investments, achieving comparable performance with other types of investment, maintaining fiduciary and oversight compliance, and more. While the report did take an objective look at impact investing, it did express enthusiasm as to how the trend will unfold in coming years.
“The global movement toward social finance and impact investing is becoming influential enough for hedge fund managers to thoughtfully consider their part in this next phase of evolution,” it said.
To access the full report, click here.