Australia is on the precipice of a period of rapid growth in impact investing as institutions and individuals become active in the market at a scale more befitting the country’s role as one of the largest institutional investment markets.
As an Australian myself, it has pained me to observe the very real difficulty of matching a new investment niche to the needs of some of the world’s largest asset owners – all while lacking access to the sizable pools of more flexible, bridging capital we see elsewhere from banks, foundations, insurers, development finance institutions, and family offices.
But after traveling to Sydney in late March for the Impact Investment Summit Asia Pacific, I believe the Australian market’s time has come. And as far as getting to scale is concerned, there are a handful of key players to watch:
1. Australia’s biggest pension funds
Notwithstanding certain regulatory pressures, Australia’s large superannuation (“super”) funds are starting to make moves in impact investing. But more work is needed to ensure this group is laying the strongest possible foundation – particularly through the integration of accepted definitions and alignment to global standards like the Operating Principles for Impact Investing.
There is some confusion about what impact investing means in Australia, but there are at least two things it is not: a) concessionary (i.e. it’s clear institutional investors can generate competitive financial returns through impact investing); and b) the “social” or “responsible” options provided as an investment choice to defined contribution super fund members, which include highly diversified portfolios of primarily public market investments pursuing myriad sustainability goals.
2. Local intermediaries serving the giant funds
In order to deploy capital at sufficient scale, the largest super funds will need to invest globally. However, they will also spur tremendous innovation in Australia as managers strive to create billion-dollar impact products that target local and regional businesses, natural assets, housing, and infrastructure. There will be twists and turns, but the design journey is one of generational importance to the Australian economy.
3. Small- to medium-sized, mission-driven asset owners
This is an increasingly engaged group including trusts, foundations, and specialized investment and retirement platforms, which is prompting the creation of networks like the Foundations Group for Impact Investing, modeled after Mission Investors Exchange in the US and the Social Impact Investors Group in the UK. It is incumbent upon this group to signal real enthusiasm and demand for impact investing, which is why the recent Endowments for Impact Challenge has been so important.
4. Investment advisory firms serving mission-driven investors
Facilitated by Impact Investing Australia, the Endowments for Impact Challenge invited advisors to present their impact credentials to a group of participating foundations with $170 million to invest. Six finalists were chosen to pitch their capabilities at a uniquely transparent final event held during the Impact Investment Summit.
What it revealed was a group of maturing advisors in Australia that are well equipped to support mission-driven investors. However, robust and rapid adoption of impact investing is needed to ensure the economics pencil out for these advisors and they can make the necessary investments in their own growth and expertise.
5. Brilliant investment boutiques
As a global investment hub, Australia has its fair share of bright asset management stars. A good chunk of their capital comes from outside Australia and there’s no reason that can’t and shouldn’t continue. In some cases, these firms may prefer non-Australian LPs given the fee pressures that are unique to the local market. But they are an important group to watch and will generate some of the best ideas globally in impact investing. One day soon they will be big enough for the largest Australian institutions to take a closer look – which sounds like a flywheel to me.