First of A Kind Impact Investment Fund Raises More Than $10M as Market Continues to Grow
20 December 2017 at 5:20 pm
Social Ventures Australia’s latest impact investment fund has raised more than $10 million and reached its first close sooner than expected, in what the experts say is evidence of growth in the Australian impact investing market.
The SVA Diversified Impact Fund is a social impact investment fund offering investors the opportunity to generate financial returns while making a meaningful social impact on the lives of people in Australia.
Since being launched in September it has received commitments exceeding its $10 million minimum size and has reached first close on Wednesday ahead of the initial end of year deadline.
Initial investors include the Myer Family Foundation, the Benevolent Society Endowment, AMP Foundation, Julian Harris Family Foundation, Trawalla Foundation, Bryan Family Foundation, and approximately 40 other trusts, foundations and high net worth individuals.
Michael Lynch, executive director of SVA Impact Investing, said the way the fund had been received by these large foundations pointed to the growing maturity of the Australian impact investing market.
“The fundraising process has made it clear to us that there has been real shift in the way impact investing is viewed,” Lynch said.
“Impact investing is now being taken seriously as a way to generate social outcomes without taking a haircut on financial returns.
“We’ve already doubled the amount we raised for our first impact fund, since it was almost half funded by government. And we’re hoping to triple it by final close early next year.”
The fund succeeds the SVA Social Impact Fund, which returned 7 per cent per annum and created 160 jobs, 22 dwellings, education programs and accessible health services for people experiencing disadvantage in Australia.
Lynch told Pro Bono News the initial success of the latest fund was likely a reflection of the higher profile of social impact investing, the success of the previous social impact bond and a lack of like funds for people to invest in.
“That is certainly something we would want to foster in terms of not being the only opportunity for people to invest in in these types of funds,” he said.
“Impact investing is a fairly broad term in terms of how people define it, whereas we have a very narrow definition which is really around social impact and the broader SVA mission of improving people’s lives. So we don’t lose track of what is the core motivation and what we’re trying to do here. It’s not about the financial side of it, it is about actually improving people’s lives.”
The fund is the first of its kind in Australia because it includes downside protection at no cost to investors from leading philanthropists, including the families of Joseph Skrzynski, Geoff Wilson and Bob Bryan.
“The fund is probably the first of its kind full stop,” Lynch said.
“With the downside protection, if you look at the previous fund, the SEDIF grant effectively provided that sort of downside protection to investors, because it was a grant and not an investment. The government didn’t really have any appetite to replicate that program and so the team decided we still felt the market needed some kind of support to attract investors. You could debate that, but I think it has certainly been a positive for many investors and in particularly as we were trying to open up to more institutional capital, superfunds and so forth, to form a trade off to return some mitigation of risk would make the fund more attractive to them.
“How it effectively works is, at the moment there are nine PAFs [Private Ancillary Funds] that between them provide that support so effectively they are taking a first loss provision.”
Lynch said the fund was “another evolutionary step in social impact investing”.
“It may well be that the next fund that we raise, once we’ve full invested this one in three years time say, wouldn’t require that feature [downside protection]. And hopefully by then we have created enough investment opportunities that we can raise a bigger fund, so it is all moving along an evolutionary track to make this kind of impact investing, if not mainstream, but certainly close to mainstream and certainly having people consider that as part of their portfolio allocations.”
The Diversified Impact Fund will invest in impact organisation and housing projects using a range of asset classes including debt, equity and social impact bonds.
Lynch said the diversified portfolio was a reflection of where the market was at and where the opportunities might be.
“The diversification gives us flexibility to invest across the capital structure in different organisations and obviously it is diversified in where it can play in the capital structure, but diversified in terms of where we are targeting to invest as well,” he said.
Alex Oppes, SVA impact investing director, and the director of the fund, said the team was now turning its attention to potential investments.
The fund, which will be seeded with three social impact bonds – the Aspire Bond, the Resolve Bond and the Newpin Queensland Bond – is looking to make 10 to 15 investments between $500,000 and $1.5 million, the first of which will occur early in 2018.
It will be making debt and equity investments in social purpose organisations that are post-revenue, ready to scale, and focused on creating social impact in Australia.
“We are looking to invest in great organisations that are ready to take on repayable capital to scale their operations and social impact,” Oppes said.
“Our ultimate goal is to create systems change in order to improve the lives of people in need in Australia.”