April saw the launch of ImpactUs – a market place platform that connects impact investments with investors in what is hoped will be a further step to institutionalize the impact investment industry.
ImpactUs selects funds and products for its platform and provides fund administration through its partnership with Gemini Hedge Fund Services. The platform also offers investors a dashboard where they can see all their holdings through ImpactUs and offers aggregate tax reporting. For mutual fund companies, ImpactUs also offers the ability to carry out valuations on some private placements.
“You can’t underestimate the opportunity that formal back-office administration can provide to mission-based organizations that are looking for investors,” says Liz Sessler, vice-president and co-founder of ImpactUs. “That second set of eyes on book and records can help professionalize the industry and get us to place where it can scale.” High net-worth clients are expected to be the main investors on the platform initially.
Matthew Weatherley-White, co-founder of multi-family office The Caprock Group and impact investment and adviser to impact investment funds, says marketplaces like ImpactUs can help mainstream the impact investment industry.
“One of the challenges of growing the impact investment industry is the asymmetry between perceived demand, actual demand, deal flow and capacity,” he says. Platforms like ImpactUs can help to address some of the imbalances.
In the short term, ImpactUs expects to host 25 to 30 products, rising to several hundred over the next 10 years. These will comprise perpetual products as well as 60- to 90-day projects. Sessler is anticipating tens of thousands of investors over the next decade, with around $3 billion in deal flow. All the products undergo due diligence and have to show documented impact outputs on a quarterly basis and have an impact mission. Returns range from 0% to the high teens.
Local to global
While investors will be from the US, the products are global. Among the current funds are Iroquois Valley Farms, a restorative farmland finance company providing land access to organic family farmers, and Shared Interest, which uses impact investors’ capital as collateral to unlock local capital in Africa.
Sessler says it is a game-changer for mission-based organizations that want to provide an impact investment opportunity but whose small margins mean that administration, technology development and marketing and sales are cost-prohibitive.
ImpactUs is not the first market place for impact investments to be established, however. PayPal, for example, owned MicroPlace, founded in 2007 to connect US individuals with microfinance opportunities around the world. More than $58 million was invested through the platform but it shut down in March 2016. MissionMarkets was another platform, which launched in 2010 connecting investors with impact investment opportunities, but that closed down earlier this year. Members from both organizations advised ImpactUs based on their experiences.
Mission-oriented institutions are nervous at present and are looking for other ways in which to support their endeavours
- Liz Sessler, ImpactUs
Given the impact investment industry is still relatively small, a marketplace might seem premature. Weatherley-White however says that now could be a good time: “It feels too early for a marketplace to be able to quickly scale up and to be commercially successful, however we have certainly reached a place where they could be commercially viable.”
In offering institutional-calibre deal flow rather than just pay-to-play, ImpactUs should see demand from family offices who are looking for vetted and trustable products, he points out.
Sessler points to the current political environment in the US as a reason that a marketplace such as ImpactUs is needed: “Mission-oriented institutions are nervous at present and are looking for other ways in which to support their endeavours. That is driving new product development.”
At the same time investors are looking to be more engaged in current issues and are looking for a professional and trusted way in which to do that, she adds.
Whether the Trump administration will encourage or discourage impact investing has been widely debated in the impact investment community. Weatherley-White says the answer is mixed.
“Eventually, markets trump policy,” he says. “Yes, the uptake cadence will be slower than if we had a more supportive presidency, but market demand for impact products is not going away. The transition to a post-carbon economy is not going to stop – the market forces are too strong. If it is a hindrance, it’s a speed bump not a wall.”
That said, although platforms like ImpactUs can help, much more needs to be done to ensure the industry continues to grow. Weatherley-White says it has gone from “hope to proof”, as products have been shown to offer market rate returns, but now needs to move from “proof to scale.” That is going to take more than moral suasion when it comes to rallying investors, he points out. “We need to keep showing returns, building an institutional quality industry and ensuring our standards to remain as high as they have.”
He says that means encouraging other institutional players to provide solutions and create new products: “The main question is, how big can this industry get? And can we ensure that the standards are maintained and not diluted when the capital markets start to take part in a substantial way? We have to keep building credibility and attracting more institutional-like investors.”