By Thomas M. Kostigen
New research from Tiburon Strategic Advisors shows increased adoption by brokerage firms of impact investing products and services.
"The impact investing market is likely to see the institutionalization of the business, platform development, & brokerage firm adoption," Tiburon said in its research report, "Impact Investing: Doing Well by Doing Good."
The report highlights the evolution of the impact investing market, market segmentations, distribution channels, and predictions for the industry.
Tiburon notes that brokerage firms won't be able to take on all facets of impact investing. For example, the wirehouses will unlikely let their financial advisors plug into certain aspects of microfinance.
Microfinance involves lending smaller amounts of money than traditional banks typically offer. This type of financial services offering is most prevalent in the developing world, but is taking shape in the U.S. through institutions such as Grameen America. Pooled lending and micro-insurance also falls into this category. Investors willing to partake in these programs are often offered higher interest rates because of the risks involved.
To that end, however, Tiburon says the "microfinance business should see the standardization of loan approved techniques & the enterprise of credit bureaus."
Impact investing, as defined by Tiburon, falls into three categories: socially responsible investing, community development lending, and microfinance. Tiburon notes that impact investing emerged in the early 2000s and has greatly evolved and matured. It says there are now 400 financial services firms in the space, including 100 socially responsible investment managers, 100 community development banks, and 200 microfinance institutions. It reports there are more than 4,000 micro lenders.
In terms of assets under management, Tiburon is sketchy. The firm breaks down AUM by leaders in the market, and cites the segmented assets by mutual fund, loans outstanding and "leader" assets under management--the latter being firms that typically make private equity investments.
Excluding assets from mutual funds, Tiburon's tally of impact investing assets is roughly $75 billion. This jibes with a Rockfeller and JP Morgan study conducted a few years ago that puts impact investing asset under management at $65 billion.
No matter, the growth has been exponential.
According to Tiburon, the key drivers of the markets are:
· Impact investments are designed to both deliver adequate financial returns and address key social & environmental issues
· Impact investing has emerged because of the growing number of wealthy investors willing to put their capital toward social good, a growing population of younger people pushing social causes, and entrepreneurs hungry for capital
· Impact investing is also a response to some of the shortcomings in existing financing methods and existing methods for enacting positive social change, including government aid and charitable contributions
· Traditional investment managers and banks are not positioned to address emerging needs
· The funding gap is too big to come from government and or charitable contributions
The institutionalization of impact investment products will make them more mainstream. This means not only standardization of certain products, but also more widely adopted impact investing platforms. These are likely to make comparisons among impact investment products easier, according to Tiburon. They will also require the alignment of philanthropic partners and financial partners.
The advent of these platforms is already being seen at Morgan Stanley Smith Barney, US Bank, and JP Morgan. If Tiburon's report is accurate, there will be much more adoption and adaptation by the brokerage community at large.