A Climate For Change
19 June 18
19 June 18
A more principled approach to investing is a key theme sweeping markets. However, most of the ethical funds launched to cater to such needs have drawbacks, whether it’s their investment focus or willingness to compromise on returns. Dissatisfaction with such traditional funds has been a key factor behind the more recent rise of Impact Investing products, such as the Impact EIS that Triple Point has just launched. They satisfy investors’ increasing demand to back businesses that positively benefit society while earning a market return. For advisers, they offer an opportunity to capitalise on one of the fastest-growing investment areas, while also building long-term relationships based on a deeper collaboration around the values as well as the investment principles of their clients.
Impact investment approach will become the norm
Increasingly, investors want to do well from doing good. No longer is it enough for many investors that the investment schemes they commit to, such as ethical funds, just avoid social damage. Nor are they happy to give up a fair market return to support companies that make a positive impact, which is what many socially responsible funds offer.
Triodos, the sustainable bank, recently found that nearly two thirds of UK citizens would prefer their money to support companies that are not only profitable but that also have a positive impact on society and the environment. Academic research also backs up this investment approach. Research from Friede, Busch and Bassen, authors of the Sustainable Journal of Finance, in a study, “ESG and financial performance”, showed that in 90% of 2,200 peer reviewed studies there was a positive or neutral correlation between the two.
What is also important to understand is that this approach is not simply catering to the investment philosophy of a cohort of more progressive individuals. Rather than ancillary analysis, it is actually fundamental critical insight into a company’s viability and potential long-term business performance.
Increasingly Impact Investing is rightly seen as a subset of commercial investing that happens to be sustainable and make a positive impact. One of the rationales of impact investing is that the long-term risk adjusted returns will be superior because the investment approach is in tune with the forces shaping the global economy. This is because it takes into account the risks and opportunities for businesses of transitioning to a more sustainable, low carbon economy where companies will increasingly be penalised for their negative social impacts.
As Stephen Barclay, previously Economic Secretary to the Treasury recently said: “Impact Investing has the power to make a positive change in society, while also bringing positive financial returns. It’s a win-win, which is why demand is growing.”
Retail investors seeking more opportunities to make impact investments
A Government review commissioned last year, chaired by Elizabeth Corley, chair of Allianz Global Investors, reported that “there is growing interest among individuals for their investments to have a positive impact on society as well as produce financial returns.” The review also said that the Impact Investing market required further development to cater for retail investors. More recently, asset managers have been responding to increased demand and have started to tailor their impact investment products accordingly.
The Government has made clear that it supports the expansion of the Impact Investing sector and is backing moves to facilitate further retail investment into Impact Investing by encouraging greater transparency, a more robust governance framework and better measurement of outcomes so investors can be clear on the positive impact their investments have made.
Triple Point Impact EIS aligned with investors’ interests
Against this evolving and very favourable backdrop Triple Point has just launched its Impact EIS managed service. It is raising an initial £10m and offers investors a portfolio of between 8 and 12 fast-growing companies across four key sectors – the environment, health, children and young people, and inequality. The funds raised will provide scale-up capital for revenue-generating companies, which have the potential to achieve returns of 5-10x.
The capital should be deployed over 12-18 months and the target to exit from each holding is four to seven years. The offer is available all year round, for a minimum investment of £25,000. Triple Point seeks to align its interests with its investors and maximise returns by limiting the costs for investee companies and not charging arrangement fees.
Triple Point’s Impact EIS investment team has significant experience in venture capital, social investment and measurement and private equity. Team leaders, Ian McLennan and Julian Pickstone, have more than 40 years of investment experience between them. They are supported by a strong advisory board of seasoned impact investors and entrepreneurs.
As a leading specialist in private investments, Triple Point is perfectly positioned to launch an impact EIS. The company has returned over £134 million to investors over the past two years, with over £240 million returned to investors in Triple Point VCTs and EIS.
Advisers can play a key role and build strong client relationships
Advisers should view Impact Investing as offering them an opportunity to take a key role in an investment approach that will increasingly be seen as standard and represents the future of growth company and personal investment. They should not see it as a separate discipline, but rather essentially as an EIS product that involves all their traditional skills of financial analysis, asset allocation and client care to ensure that they meet their clients’ objectives.
Impact Investing has the potential to be a core asset allocation through better understanding facilitated by advisers and platforms that can highlight the benefits of impact investing to clients.
Through Impact Investing advisers also have an opportunity to strengthen their client relationships. Typically, such investment requires a more in-depth, meaningful collaboration. Assisting clients in shaping their portfolios to deliver robust market returns alongside positive environmental and social impact can help build longer and lasting relationships and involve co-operating on a much deeper, personal level.
The Personal Finance Society recently launched a guide for advisers on Impact Investing, following the recommendations in the Government review.
An impact approach is the investment expression of the global forces shaping economies and how businesses operate, as well as the principles investors follow in implementing their investment decisions. In the years to come, it is on course to evolve into probably the most important and dominant approach in financial markets to both growth company fundraising and personal investment. This leaves providers and advisers with critical roles to play in ensuring that it meets the needs of both investee growth businesses and the investors who provide the funding and also becomes a core part of their investment portfolios.
Risk Warning: Your capital is at risk. There is no guarantee that target returns will be achieved and investors may get back less than they invested. Tax rules and reliefs are subject to change.