“Inappropriate” impact investing products being sold in Asia

Interest in impact investing is growing but there is still a lack of suitable impact investing offerings targeted directly at the needs of Asian wealthy investors, delegates at AsianInvestor’s Family Office Forum (FOF) heard last week.

Non-Asian private banks, in particular, have a habit of selling impact investing packages in Asia that have been created mainly with clients based in Europe and the US in mind, said one partner at a family office (FO).

"At least half of those [impact investing] products are inappropriate for [Asian] investors,” he said, noting how some focus on areas or sectors that are not necessarily top of the agenda for investors in this part of the world.

“An impact investing package could aim to alleviate poverty in Africa, but Asian investors might prefer to invest in projects that are closer to home, in markets such as Cambodia or Myanmar,” he said.

AsianInvestor's FOF, which brought together a range of multi- and single-family office executives at the Ritz Carlton, took place in Hong Kong on May 29 under Chatham House rules, meaning any comments could be reported but not attributed.

The goal of impact investing is to generate measurable social and/or environmental benefits as well as positive financial returns.

LACK OF EXPERTISE?

Not helping matters is a lack of structuring expertise in the region for impact investments.

Many investors find they might have to spend a lot of time undertaking due diligence on small-scale projects; as a result, they might opt to invest in a project managed by a big global private bank, the FO partner said.

Specialists at private banks acknowledge that Asia lags the US and Europe when it comes to impact investing but they also note the growing interest in it among the region's investors.

"UBS's impact investing strategies to date have focused mainly on developing countries, including numerous investees in Asia, as well as high-impact technologies such as [education]-tech and oncology drug development in developed countries," James Gifford, head of impact investing at UBS, told AsianInvestor. "However, we seek to serve a global client base, including Asian clients, and our Asian clients have shown strong support for our impact strategies.” 

Bernard Fung, head of wealth planning services in Asia-Pacific private banking at Credit Suisse, notes that many of the impact funds raised to date in the region have been small or focused on relatively small transactions in so-called social enterprises.

“In Southeast Asia and China – unlike India, Africa and Latin America – there are few impact funds which focus on expansion capital opportunities in the $2 million-$10 million space, and which adopt a commercial approach to impact investing,” he told AsianInvestor.

Not only is the risk profile of such $500,000-to-$2 million deals far higher (venture-capital risk, in essence), they also have a higher likelihood of failure, he said, adding that the returns are simply not commensurate with the risk.

Nevertheless, he too acknowledged increasing interest in impact investing across client segments at Credit Suisse.

He also said the private bank has attempted to provide more Asia-focused solutions, noting that in 2015, it launched an Asian Impact Investment fund in partnership with UOB Venture Management.

“The fund achieved a final close of $55 million in end 2016, with nearly 80% of commitments coming from our Asian ultra-high net worth clients,” he said.

The areas that investors are most interested in are education, healthcare and even the arts, the FO executive told delegates.

Marisa Drew, chief executive of the impact advisory and finance department at Credit Suisse told AsianInvestor in an interview last month that climate change and environmental concerns are also increasingly key focus areas for wealthy investors.

“Another area that is gaining traction is marine conservation although at the moment, we do not have enough investible opportunities of sufficient scale,” she said.

MEASURING IMPACT

The big challenge remains measuring impact, which understandably can vary from project to project.

Some global standard metrics have been identified for measuring impact investments but they are not always suitable in the Asian context, the FO speaker said.

One of the metrics under IRIS, promoting human rights, for instance, is not a metric that is suitable for Asia, since adopting that metric has “huge” political implications and could be dangerous, he said. (IRIS is a globally accepted series of purpose-built impact investing performance metrics produced by the Global Impact Investing Network (GIIN), a nonprofit organisation). 

As such, investors that want to invest in impact projects but lack the experience should start by investing small amounts (HK$1 million or so). Because without that experience it’s tough to manage investment outcomes efficiently and especially tough to judge how effective investments are, the FO executive said.

For instance, how does one assess the quality of an investment in a school education project? Is it based on the number of children passing a certain grade or from the number of children attending classes? 

Nevertheless, as Credit Suisse's Drew points out, it is important for investors not to get too hung up over standardising impact measurements. Eventually, investors and structurers can agree on the right metrics that make sense for a given project, she said. The important thing is to get started with a project whose mission they identify with -- after having done their due diligence, of course.

*This article has been amended to mention the launch of an Asia impact investment fund by Credit Suisse.