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Asia’s rich are finally getting serious about channelling more of their massive wealth into impact investing — as long as they can find projects offering market rates of return in countries and industries close to their hearts.
Despite boasting more billionaires than any other region in the world and a raft of socio-economic and environmental challenges at home, Asia has remained a peripheral player in the impact investment world.
Just 13 per cent of the $114bn funding tracked by the Global Impact Investing Network in 2016 found its way to Asia, according to GIIN’s latest annual investor survey, which, although not exhaustive, offers the most comprehensive data available.
GIIN’s figures actually overstate Asians’ involvement in impact investing, a sector which covers everything from projects to alleviate poverty to job creation in marginalised areas, offering financial services to the unbanked and tackling environmental problems.
“Historically we’ve seen a lot of capital flow from North America and Europe towards Asia,” says Abhilash Mudaliar, GIIN’s director of research, noting that Asians themselves have shied away from the market.
Now, Mr Mudaliar and other experts say the market is changing. GIIN’s research shows impact investing in eastern and south east Asia grew by more than 25 per cent over the three years to 2016.
At Credit Suisse, the third largest private bank operating in Asia, wealthy individuals from Asia-Pacific put $55m into its maiden impact investment fund launched in partnership with UOB Venture Management in 2016. These clients are eagerly awaiting another round, according to Joost Bilkes, who is responsible for the bank’s Asia-Pacific impact investing. “I really feel that at the moment we are going through this inflection,” he says, referring to growing appetite for impact investing in the region.
Last year, Singapore’s DBS, one of Asia-Pacific’s largest banks, offered its first ever impact investment to private banking clients who went on to buy 60 per cent of the $8m Women’s Livelihood Bond created by the Impact Investment Exchange (IIX).
The IIX was founded to develop the world’s first listed exchange for impact investing companies, but now spends most of its time on other impact investing work including a private placement platform and making impactful firms “investment ready”. It is already talking to DBS and other banks about further fundraisings.
“There’s appetite there, it’s just a question of how to tap that demand,” says IIX’s managing director Robert Kraybill, who hopes to raise $100m through a second Women’s Livelihood Bond later this year.
Bankers, investors and other experts offer various reasons for impact investing’s ascendancy in Asia-Pacific, including the natural maturing of Asia’s relatively young wealth market, and the growing influence of a next generation with a different outlook on the world.
Yet the common thread that comes up in every conversation around impact investing is the opportunity — and necessity — to make money.
“We’re very clear that we are focusing on market rate returns, that’s a key, key piece,” says Mr Bilkes. “If you want to solve the really major issues that we’re facing today, pollution, poverty, under developed and unsustainable supply chain and so on, we have to appeal to the investment portfolios of our client base. That is where we can get scale. We can only attract those assets if we can show a market rate return.”
Mr Mudaliar says that tackling the “misconception that impact investing” cannot secure market returns is a priority for GIIN.
Shuyin Tang, partner at Asia-based impact investment house Patamar Capital, says Asia offers superior returns compared to impact investing in other regions because of “the size of the population and the macro outlook”.
“Despite all the Asian Tiger talk there are still some really big social problems to be solved,” she adds. “Asia really enables highly-scalable solutions.”
Those “highly-scalable” returns are the reason that India is the single biggest market that Michael Schlein invested in with Accion, his global non-profit impact investment firm. “There’s no trade off at all, there’s huge social impact and huge financial returns,” he says.
Big commercial businesses are also investing, including Google’s Tez, an app which has enabled Indian street vendors and other micro businesses to make low-cost or free digital payments straight to their bank accounts.
Unlike their peers in Europe or the US, Asia’s burgeoning cadre of impact investors want to operate in markets that they have a connection to.
“Close to home is extremely important,” says Mr Bilkes, adding that Credit Suisse identified “affinity and proximity” as one of the main reasons why Asia-Pacific clients did less impact investing over the past decade than Europeans or Americans.
Asian entrepreneurs are particularly motivated to develop basic infrastructure, education, financial services and healthcare in markets that are important to their family businesses. Addressing global problems like man-made climate change are lower down the agenda, according to Mr Bilkes.
Mr Bilkes says that it’s a “no brainer” that Asia-Pacific will soon represent a bigger percentage of the global impact investing wallet, based on the economic and social environment. He can see Asia taking “at least a third” of global impact investing spending — up from GIIN’s currently estimated 13 per cent — “and we would still be under invested” compared to the potential market.
Ms Tang is more cautious. “People [in Asia] are very receptive to the idea and beginning to experiment, we’re moving in the right direction, but I wouldn’t say the floodgates are open by any stretch of the imagination.”