Institutional investors and recycled returns play growing role in €6bn impact funds

Institutional investors play an increasingly important role in supporting billions of euros of impact investing in Europe, according to research published today. 

Venturing Societal Solutions – The 2020 Investing for Impact Survey, a report by the European Venture Philanthropy Association (EVPA), shares findings from 112 European investors that ‘invest for impact’ – investing with a primary focus on achieving a social impact, with any associated financial returns a secondary objective.

In 2019, these investors supported social purpose organisations with €6.2bn, the report reveals.

The proportion of capital available provided by institutional investors – entities such as pension funds, insurance companies and sovereign wealth funds – doubled from 12% in 2017 to 24% in 2019.

This contrasts with a movement in the opposite direction for the proportion provided by individual donors/investors, which almost halved from 23% to 12% during the same period.

The proportion of funding from financial institutions, governments and recycled returns on investments also increased substantially, while the proportion from endowments and trusts, and from corporations, significantly decreased.

Large impact funds with €25m or more assets under management were particularly reliant on institutional investors, which provided 52% of their total funding. Among large foundations, income from their own endowments or trusts made up 30% of total capital available.

More than a third of all investors surveyed had an annual budget of less than €2.5m, but 27% had budgets of over €20m, and their share has increased since 2017. Aggregate budgets of 31 organisations that responded to the past three EVPA industry surveys had nearly doubled since 2016.

Small-ticket, supportive and patient

EVPA’s industry survey, conducted every two years, suggests that investors for impact are factoring in the particular needs of social purpose organisations. 

Typical investments were relatively small, with 68% saying their average per investee was less than €500,000, and almost half (43%) investing in organisations that would never be financially sustainable by themselves. Virtually all those surveyed said they provided non-financial support during the investment, with the majority doing so pre-investment and 43% continuing to do so post-investment. The proportion of those providing non-financial support has increased at all three stages compared to 2017. 

More than half of debt providers have an average commitment of more than four years, while about 60% commit their equity financial capital for at least six years.

About 60% commit their equity financial capital for at least six years

Almost 90% of respondents had co-invested at least once before, and just over a third had been involved in at least one hybrid financial mechanism such as a social impact bond. Over 40% deployed more than one type of financial instrument.

Financial inclusion or access to finance was the most-backed sector, representing 25% of capital invested. But, while 72% of respondents invest in education, the sector attracts just 9% of total capital invested.

Unexpected exits

More than two-fifths of Europe’s investors for impact said they had exited at least once because they realised an investee would not achieve its social goals, suggesting a need for more agreement on expectations at the deal-making stage. One-fifth had exited because they realised the investee would not achieve its financial goals. 

However, 38% had exited because an investee had achieved its social goals.

Some 70% said they made sure that impact would be preserved after existing by selecting only investsees that have social impact embedded in their business model.

Almost half the investors surveyed are based in either the Netherlands, France, the UK or Italy; almost a third are independent foundations with a further 10% corporate foundations. 

EVPA estimates that there are around 400 investors for impact in Europe.

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