While impact investing is maturing fitfully across markets according to GIIN’s latest survey, another study by the Palladium Group focusing on the market in Asia suggests the region maybe is not [compared to other markets like in the U.S. or EU], is fragmented and needs developing.
Palladium is an international advisory and management business focusing on social innovation and impact investing and is based in the U.S. Balanced Scorecard experts Dr. Kaplan and Dr. Norton are among who notably helm the company.
Key Findings – Why This Matters
As a result, large global funds invest only a very small proportion of their portfolios in the region. This makes raising capital more difficult for SMEs and widens the so-called “pioneer gap” – lack of financing for innovative business models.
Fund managers cited challenges finding investable impact SMEs in the region, suggesting weaker networks between investors and SMEs, lack of proven data or better measuring tools, and perceptions of higher risk.
Interestingly, the study also found concessionary returns at an impact fund level – meaning targeted financial returns that are below what private investors would require based on the risks associated with the investment.
To help mitigate risks, a few of the funds surveyed, labeled “Balanced Early” and “Balanced Growth” in the study, engaged donors and philanthropists as investors, but were syndicated with investors seeking market rate returns.
Fund Distribution by Country
Indonesia was found to have the most active impact investors with the highest number of active funds, a more developed SME ecosystem and more local investors investing in seed and early stages. Investing in India remains active.
Sri Lanka, Laos, and Myanmar have the least investment activity, due in part to a less developed ecosystem for SME.
Impact investing dynamics are certain to change if Beijng’s OBOR improves infrastructures in the region. Growing wealth remains a main driver along with opportunities to impact financial inclusion, health care and agriculture.
Palladium’s Data Methodology
Cambodia, Indonesia, Philippines, and Vietnam had the largest number of interviewees located in the region and were selected by Palladium as the countries where the research team would travel to and conduct in-person interviews. Telephone interviews were done for other countries.
“No portfolio, investment, or fund reviews were done in terms of performance. IRRs referenced in this report have been taken as presented and no analysis or reconciliation between Net and Gross IRRs was conducted.”
Among those surveyed were Anthem Asia, India-based Aavishkaar Frontier Fund and the Soros Economic Development Fund (SEDF).