Impact Investment Group’s new ‘alternative’ fund explained
24 September 2020 at 8:11 am
Impact Investment Group recently launched a $70 million “fund of funds” – the first of its kind in the country. We take a look at what that means.
The Impact Investment Group (IIG) has seen a lot of growth since it was founded in September 2013 with a single $5 million real estate investment.
As of September 2019, IIG has more than $710 million in assets under management, deploying capital on behalf of around 500 clients after investments are made across all our funds. Most of its investors are of high-net wealth, and traditionally these investors would choose to put capital into its real estate, renewable energy or Giant Leap funds.
But last week, IIG launched the Impact Alternatives Fund, which the organisation’s CEO, Daniel Madhavan, believes will take steps to open up the impact investing space to new investors and new opportunities.
So, what is different about the new fund?
Unlike other products IIG offers, investors can come into this fund and invest across six different impact strategies of impact debt, impact venture and private equity, regenerative farming, renewable energy infrastructure, social impact bonds, and environmental assets.
Madhavan told Pro Bono News that providing diversity meant that they could support a range of environmental and social outcomes, and provide investors with access to a diverse portfolio across a number of different investment and impact strategies.
“A lot of investors are looking for diversification, so not just being in a single asset or a single strategy. They want to be spread across a number of different strategies, and this fund does that,” Madhavan said.
Another point of difference is liquidity. Normally, investing in an impact product means kissing goodbye to your money for five, seven, or sometimes 10 years before seeing a return on investment. This fund works a little differently.
“After a three year lockup period the fund provides investors with the opportunity to redeem money on a quarterly basis,” Madhavan said.
“A lot of feedback we’ve had about impact products that are out there that people would like to see, particularly in this low interest rate environment, is more stable, regular income.
“So this aims to provide investors with a quarterly income stream.”
Why these six impact strategies?
The six strategies were selected after being screened for two things. First, for being able to support positive impacts and appropriate financial returns. And second, for what IIG believed would deliver enough investable opportunities to deploy capital and for being genuinely “alternative”.
It’s called the alternatives fund. What does this mean?
Typically, investors divide their portfolios into a number of “traditional” asset classes. These include shares on the stock market, bonds, property and cash.
But the “alternatives” part of an investors portfolio is for everything that doesn’t fit into those definitions. That can range all the way from products such as hedge funds to real assets such as collectables.
According to Madhavan, it’s basically any investment that is likely to perform in a unique way, independently of the performance of those traditional asset classes.
One of the reasons IIG decided to go down this path was after getting feedback from investors that given the uncertainty of the markets at the moment, finding a place to put their money was a struggle.
“The alternative space, which aims to perform through a whole market cycle, is an attractive place for them to put money,” Madhavan said.
“I think this fund is enabling us to stretch further with the impact that we want to have, both in terms of creating new impact products or supporting the development of new impact products, but also to be able to spread it across those six strategies.”
An inroad into impact investing
Madhavan added that investors have been looking for a way to have more of a positive impact with their money, but it’s often overwhelming. He hoped the new fund would make things a little simpler.
“Often people don’t know where to start, and so we were really interested in establishing a place to start,” he said.
“It’s a really user friendly fund where you make one investment and one investment decision and you can get access to a range of different impact strategies.”
The fund will deliver a 6 per cent to 10 per cent pre-tax return per annum, and will initially only accept money from sophisticated investors (investors that meet a certain income or assets test), but this is something that over time Madhavan would like to change.
“We think this is a product that has really broad appeal and will resonate with everyday investors regardless of their familiarity with impact investing,” he said.
“We think this is a great opportunity to help mainstream the concept of the practice of impact investing, and through this, we hope to not only demonstrate impact through the measurement of outcomes, but also by telling stories about what people’s money, what investors’ money, is doing in the world.”
You can find out more about the fund here.