The latest iteration of ImpactAssets’ annual database of private equity fund managers investing to create positive social and/or environmental change provides further evidence that impact investing is a maturing industry.
Of the 143 fund managers selected for the 11th edition of the ImpactAssets 50, or IA 50, nearly half have been in business for more than 10 years. They’re funds known for their financial and impact performance and for “being credible beyond rhetoric,” says Jed Emerson, global head of impact investing at Tiedemann Advisors and chair of the review board at Tiedemann Advisors. AI 50.
Recently, a boom in investment products with some type of sustainability or environmental, social and governance label has raised concerns that many funds are not, in fact, creating positive social and environmental outcomes. But the track records of managers in the IA 50 universe demonstrate that they “have been doing the work for some time in communities and ecosystems across the United States and around the world,” Emerson says.
The IA 50 Core Database includes 57 managers with at least $25 million in assets and a track record of at least three years. It is assembled to reflect the breadth of the sector across asset classes, investment themes and geographies. This is not a comprehensive list of funds or a ranking, but a resource intended to provide insight for investors new to impact.
“We want a good overview of the landscape that can give people who come into the field a solid orientation as to how they might think about this,” Emerson says. However, investors should do their own due diligence on funds before committing capital, according to ImpactAssets.
In addition to the basic list, the database also includes 50 emerging managers who operate on a small scale or have less than three years’ professional experience, and 36 top managers who have consistently appeared on the IA list over time. In total, the database for 2022 includes 143 funds with nearly $117 billion in assets.
Investors are increasingly turning to the IA 50 lists for advice, with 42,000 accessing the database in 2021, up from 31,000 in 2019, the company said.
penta spoke with Emerson and Sandy Kartt, Managing Director, Investments, at Maryland-based ImpactAssets about the evolution of notable trends in the annual compilation.
Funds over US$1 billion
Across all categories, 15 have assets over US$1 billion. Zurich-based Blue Orchard Finance, for example, a member of the Schroders group in London, was founded in 2001 to be the first commercial microfinance debt manager, according to the IA50 database. It is now the largest microfinance fund in the world, having invested over US$8 billion across the globe.
Another example is Jonathan Rose Companies, founded in 1989 and headquartered in New York, which invests in green, affordable housing and community development.
Not included in this list are large impact investment funds managed by branded private equity firms such as KKR or TPG. This may be because when selecting fund managers, ImpactAssets and the IA 50 review board focused on managers linked to companies whose majority of overall assets were devoted to impact investing.
“On the one hand you want to engage with traditional players, you want to challenge us all to do more and be more relevant in terms of our capital, but at the same time it raises questions about the other capital,” says Emerson. “What’s going on on the other side of the house?”
make the cut
Before being included in the IA 50 database, managers are scored and analyzed on both financial results and the impact of their strategies. Financially, ImpactAssets relies on the experience of the management team and the execution of the fund. They note whether managers are aiming for concessional or above-market returns, and whether they are meeting those goals, Kartt says.
To analyze impact, ImpactAssets details the communities served or the overall impact they seek, if, for example, the fund is tackling a major issue such as climate change.
How each fund measures and reports on its impact is also examined. “We like to see as much transparency as possible,” says Kartt.
The goal is to determine which managers do what they propose to do. “Those who stood out were those who practiced what they preached over their documentation of the impact,” Emerson says.
While a ratings section helps narrow down the list of funds, ImpactAssets also digs deeper to ensure that each fund represents the industry as a whole. This includes fund-by-fund consulting with Align Impact, a California-based impact investing advisor. The final list is then assessed by the Impact Analysis Review Board, which includes seasoned impact investing professionals.
ImpactAssets reviewed 275 funds this year before settling on the final 143. For the main IA 50 database, 113 funds were rated.
Among the top AI 50 managers, 25% have invested in clean technology, alternative energy and climate change, up from 21% a year ago, according to ImpactAssets.
Of the overall list, 18% focused on clean technology, alternative energy and climate change, while 16% focused on microfinance, which has always been a major impact theme. Another 12% of funds focused on diversity, equity and inclusion, or DEI.
The future direction of impact investing is most evident among emerging managers. These funds invest heavily in DEI and their management teams reflect this orientation.
According to ImpactAssets, of the AI 50 Emerging Impact Managers, half said that 50% or more of the investment professionals on their teams were people of color, while 60% said that more than half of their investment professions were women.
The other most common themes were clean technologies, followed by natural resources and conservation.