Impact investing in emerging markets might be poised for a major growth spurt, as proponents see pension funds and other institutional investors taking an increasing role in a field that largely has been filled by government financial institutions, foundations, and more specialized private equity managers.
Large asset owners are starting to get more interested in impact investing — investments made with companies, organizations and funds that look for measurable, beneficial social or environmental impact, as well as a financial return— in emerging markets partly “because there is a growing recognition of impact investing as a style of investing generally. There are strong returns and very measurable impact,” said Rekha Unnithan, manager of Nuveen‘s $650 million impact investing portfolio, where emerging markets account for nearly 40% of the overall strategy. “They are recognizing that this is not just a niche area.”
David Bohigian, executive vice president of the Overseas Private Investment Corp., said, “I do believe we are at a tipping point for impact investing in emerging markets.” While governmental financing bodies like OPIC and some foundations have been ahead of other institutional investors in this area, “what’s happening most recently is a blending of all three of these, where they (all the parties) understand they can unlock more capital working together,” Mr. Bohigian said.
Abhilash Mudaliar, Seattle-based research director for the Global Impact Investing Network, said that “historically, there has been the mental dichotomy that there are governments and philanthropy on the one hand, and capital markets on the other. In recent decades, we’ve seen that dichotomy increasingly challenged.”
According to GIIN’s annual impact investor survey, 225 institutions, including pension funds, invested $35.5 billion in impact investments last year, a nearly 60% jump from 2016, and this year they are planning to increase capital invested by 8%. Across all survey respondents, impact investing assets totaled $228 billion, with more than half, 56%, of that allocated to emerging markets.
EMPEA, the global industry association for private capital in emerging markets, found in its 2018 survey that 88% of limited partners — the highest proportion since the 2014 survey — plan to maintain or increase the dollar value of commitments to emerging markets private equity over the next two years, with the largest sectors being microfinance, energy, housing and financial services. The survey, released May 15, queried 107 limited partners in 36 countries with a collective $358 billion in private equity assets.