News & Insights
GIIN Investor Forum: Common Themes Emerge from Inaugural Meeting
by Jason Henning, director of investor relations, Global Partnerships
Blended capital. Bottom of the pyramid. Pay for success contracts. MFIs, CDFIs, IRIS and SMEs. Dive headfirst into a conversation on impact investing and it’s likely you’ll need a glossary of terms within reach.
Fortunately, the Global Impact Investing Network (GIIN) was established not only to help industry participants navigate the field, but also to build the field itself. The GIIN is aimed at increasing the scale and effectiveness of the impact investment industry by creating infrastructure and developing education and research. I recently had the pleasure of participating in the inaugural GIIN Investor Forum, an event designed to address common themes and best practices from the industry.
Topics covered a range of salient issues facing the sector, including a focus on specific impact areas (viable food systems, financial services for the poor) and discussions on the legal, operational and political aspects of investing. But two themes were given consistent voice throughout the two-day conference:
1. market-rate solutions in impact investing; and
2. the need for catalytic first-loss capital in getting more money flowing to viable programs.
As more institutional investors with financial obligations look to link their investments with social impact, capital that seeks market-rate returns is stacking up. Fund managers can often be caught in the middle, as some investors look to maximize profit while others are seeking high social performance within the same fund.
Speakers at the forum, however, mostly issued words of caution. Matt Christensen, Global Head of Responsible Investment at AXA Investment Managers, warned that if investors don’t adjust return expectations to risk, an impact investing bubble is on the horizon, much like the shock Andhra Pradesh sent through the microfinance sector. Investors were urged to tie pricing and time horizon directly to the impact they’re seeking; in rural settings, for example, where there are fewer economies of scale, investors must be more patient and be realistic on rate.
The value of risk capital also permeated the conference. With the GIIN’s most recent issue brief as a backdrop, many presenters spoke to the importance of catalytic first-loss capital in generating the flow of more traditional capital into the impact investing space. Most capital within the industry is sitting on the low-risk end of the spectrum, while most impact investment deals are higher risk. A range of credit enhancement products aimed at unlocking private capital was explored—including grants, subordinated debt and guarantees—all designed to peel back the first layer of risk.
Topics discussed at the GIIN Investor Forum parallel much of what we’re trying to accomplish here at Global Partnerships. Our goal is for 100 percent of our capital to be catalytic and aimed towards impact. We see the importance of philanthropy within impact investing to seed early-stage opportunities and later attract private investors. And we work closely with our investors on establishing rate expectations to align with the specific impact we’re seeking. We look forward to continuing to add our voice to the conversation and help build the industry.