We have had a lot of conversations over the past 18 months. Conversations with entrepreneurs, social innovators, wealth managers, financial advisors, thought leaders, pension fund directors, foundation heads, and so on, and so on. The conversations have ranged in depth and breadth, but our underlying topic of discussion has focused on the oh-so-popular and en vogue term – impact investing.
Now impact investing can be a very ambiguous term, defined by broad reaching strokes. For some, it’s defined by impact leading metrics with little focus on financial returns. For others, it is investments that return market rates with a nicely attached story that brings a smile to your face. The world of impact investing is a nebulous space and we’ve heard A LOT of definitions.
Throughout our conversations though, there has been a constant – and that constant is the demand. One pension fund director, with more than a billion dollars under management, told us that her clients are chomping at the bit for impact investment opportunities. Some reports throughout the financial world predict numbers upwards of a trillion dollars could be available for impact investing opportunities in the next five years. Time and time and time again we have been told, in paraphrased form – if you build it, they will come.
But is the opportunity to invest with impact really an impending deluge? Some of the hype could make you believe that the first person to unlock the gates of the impact investing world would bring the second coming of the Great Flood – only this time the world would be covered with glittering silver and gold, pouring across mountains and streams on a quest to end poverty, reverse global warming and bring smiles to everyone.
It seems (to us at least), that the true potential of impact investing rests somewhere in between the lines of blurry and opaque. There is no one panacea that will alleviate the itching demand of impact investors. Nor is there one opportunity that will act as the key to castle that holds all the money of the impact investing kingdom. The bigger question seems to be, are investors willing to change their frame of reference and ingrained behaviors?
The name of the game in investing is finding a method or system that works for your tolerance for risk and your desire for return or reward. There are a myriad of techniques and methods employed today, but it seems the problem for impact investing may be that these myriad of traditional approaches may not work in the “normal” way. In today’s world of impact investing, how we define and measure risk, build investment opportunities, return profits and define our repayment schedules may look different than what traditional investors are used to.
Accepting these investment opportunities that have a different look and feel than the status quo is going to present challenges in behavior change and widespread acceptance. We at Axios see this as one of our greatest challenges and opportunities. We believe the opportunities are out there for investors to find financial returns while driving positive societal impact – but that world of opportunity is a foreign one that the investor community is going to have to explore and learn before becoming totally comfortable in the new environment.
Eric Byington, SVP Business Development & Impact Investment.