Impact investments have grown 26 per cent annually over the past decade to USD 10.8 billion, but 97 per cent of the funds have come from offshore family offices and high networth individuals/institutions, with the domestic contribution being only the rest at USD 279.5 million, says a report. The 3 per cent of family offices and high networth individuals (HNIs) comprise 83 such entities who have been active in impact investing till the decade ending 2020, and have collectively pumped in USD 279.5 million, indicating their contribution is yet to become meaningful, a study by the Impact Investors Council and independent multi-family office firm Waterfield Advisors said.
Touted to be an industry-first, the report notes that most impact capital currently comes from global institutional investors showing the significant potential to unlock domestic capital. The study has analysed data from over 700 domestic impact enterprises till the decade ending 2020, and a survey among 31 domestic family offices/high networth individuals during July-August and who have a cumulative networth of over USD 15 billion and run 15 impact funds.
The report says the low domestic contribution is due to the fact that most family offices/high networth individuals invest only small amounts at seed stage, while a few are active in large-ticket later stage deals. Even as 52 per cent of them invest in seed-stage amounting to USD 4.7 million; 17 per cent do so in series-A amounting to USD 20.5 million and 26 per cent invest in series-B and later stages, amounting to USD 138.9 million.
Another key highlight is that domestic family offices prefer direct investments into impact enterprises as almost 60 per cent of the total investments has been made as direct investment, which gives them a hands-on role and higher satisfaction. When it comes to investment areas, the most preferred sectors are financial inclusion and healthcare with 50 per cent of the total investment flowing in.
Significantly, many family offices/HNIs are comfortable with below-market returns with 55 per cent of them expecting risk-adjusted market-rate returns while 45 per cent are fine with below market-rate returns.
This indicates significant potential for the impact investing ecosystem to tap into impact-focused family offices/high networth individuals by improving the impact narrative.
According to Soumya Rajan, founder and chief executive, Waterfield Advisors, the pandemic has enabled the rich to adopt a broader view of wealth as having human, financial, social and environmental dimensions or wealth with a purpose.
Ramraj Pai, chief executive, Impact Investors Council, said impact investing presents a unique long-term opportunity for the rich to become catalysts for innovation, entrepreneurship, and social impact and in turn they can benefit significantly by leveraging strategic capital and expertise.
Waterfield works with 50 families managing over USD 2.2 billion of assets, while the Impact Investors Council is the national industry body with 47 members including the Aavishkaar Group, Omidyar Network, Michael and Susan Dell Foundation, Elevar Equity, and Caspian Investment Advisors, amongst others.