What can we learn about impact investing in emerging markets from the recent GIIN/JP Morgan survey?

Shelagh Whitley and Emily Darko
10 June 2014
Comment

The Global Impact Investing Network (GIIN) and JP Morgan published their fourth annual global impact investor survey recently. The survey is a vital tool in understanding the current state of impact investing, contributing to a more realistic picture of the scale and scope of the market.

 

There are some very interesting findings from this year’s GIIN/JP Morgan survey; particularly for those interested in the role of private finance for development. The survey covered 125 investors (public and private), and found that capital committed (self-defined by respondents) was $10.6 billion in 2013, and that these investors have $46 billion of assets under management (AUM). Of the AUM, 70%, or $32.2 billion, is invested in “emerging markets” – self defined by GIIN / JPMorgan as including all countries outside of North America, Western Europe and Oceania. 

$32.2 billion of AUM is not an insignificant amount in the context of impact focussed capital directed toward emerging markets. It is double the total UK aid budget in 2013. The GIIN/JP Morgan study also finds that the majority of total AUM (42%) are held by Development Finance Institutions (DFIs), with the second highest (34%) held by ‘fund managers’.

These findings alone raise a number of questions about impact investing’s role in emerging markets, and opportunities for additional information on support to developing countries.  


In 2013, ODI developed an approach to measure support to social enterprise in emerging markets.  Our tool quantifies the full range of direct support provided to social enterprises in emerging markets and indirect support to the market infrastructure in which they operate.

The ODI survey tool was developed as when reviewing existing data and surveying approaches (including that of GIIN/JP Morgan), we found little year by year information i.e. on capital and support provided. To deepen this analysis, ODI’s tool asks respondents to report spending for their previous financial year, which allows for a picture of how investment is changing over time, at market level, by actor, and in terms of sectors, regions and activities targeted. This disaggregated information can also show clusters and gaps in the wider support provided to social enterprise, which can in turn inform where future support is provided. GIIN/JP Morgan identify constraints caused by lack of viable investment opportunities and lack of appropriate capital across the risk/return spectrum. Detail on where support is provided could help understand and overcome such constraints.

To address the challenge of understanding who provides investment to impact investment funds, the ODI survey asks respondents what proportion of funds’ capital is not their own, and of this non-proprietary capital we ask what type of investor this comes from. This allows us to see, for example, what proportion of fund capital is supplied by DFIs. On the funder of funds side, our analysis removes non-proprietary capital from the data to avoid double-counting.

As seen in the results of the GIIN/JP Morgan survey, impact investment which seeks a return on capital, is only part of the picture of social enterprise funding and support. Social enterprises – particularly given their innovative business model and activities – need other forms of support than commercial capital. ODI has completed initial research into the activities of donors in providing support both directly to these enterprises and to the market infrastructure in which they operate. This review included a wide range of bilateral donors, and identified the challenges in reviewing the portfolios of DFIs to determine which of their activities might qualify as impact investment or support to social enterprise.

We hope that GIIN/JP Morgan, ODI and other data gatherers will continue to be part of a growing movement to promote understanding of the impact investing and social enterprise space particularly as it applies to emerging markets.

  • Firstly, and technically, how does the committed capital figure (which cuts across all countries and allows us to identify planned, although not necessarily deployed, investment for a single year), link to figures for AUM which are the basis for all analysis and statistics in the report sector, but could represent funding over the past 2 years, 5 years, 10 years?
  • Secondly, and building on the first question, how much of the $10.6 billion committed in 2013 was deployed in 2013 to “emerging markets”, from what types of investors, to what sectors, in what countries and through what financial instruments?

  • Thirdly, who is investing in the funds that are providing impact investment? Are DFIs, foundations, banks, family offices and other impact investors providing equal or different level of investment through funds, and how might this give a fuller picture of their overall support?
  • Finally, are DFIs a dominant provider of impact investment, or are they just better at identifying impact assets within their portfolios (or more incentivised to do)? This question becomes even more pressing when you see that though DFIs are a dominant provider of impact funds, they represent only 6% of the 125 respondents. 
  • Some recent research from ODI begins to answer some of these questions, and suggests an approach for collecting more detailed information on support focussed on emerging markets. We believe that there is scope for collection of more detailed year by year investment data, which would provide greater insight on trends over time, and additional granularity on modalities and targets of support. This is particularly relevant for emerging markets, where there are often a wide range of actors providing support, including but not limited to impact investors seeking a return.
Shelagh Whitley and Emily Darko