Why the cost of impact investing is coming down

24 March 17

Impact investing is challenging and expensive but it’s worth pursuing for superannuation funds, says Tim Macready, Christian Super’s chief investment officer.

The $1 billion Christian Super is leading an advance party into the area of impact investing, which is — simply put — investing with the intention of generating measurable beneficial social or environmental impact along with a financial return.

So far, Christian Super has invested 9 per cent of its fund in designated impact investments, and has an additional $45 million committed but not yet drawn on for investment in this style of strategy.

It’s the biggest commitment to impact investing by a fiduciary asset owner in Australia — other funds including HESTA, QBE, Australian Ethical and First State Super are among the names investing or actively exploring investments in this area.

There are some real benefits to impact investing, not least of which is the appeal it has to members who are increasingly becoming informed about where their retirements savings are invested, Macready says.

He reckons there are now enough available assets to be able to diversify between geography, sector and risk exposure.

But what funds considering allocating to impact investments are likely to get most caught up on, he admits in conversation with Finsia’s InFinance, is the cost of this style of investing.

2pc, not too much

An investment in an impact-style fund or private equity deal can cost as much as 2 per cent (or assets invested), he notes.

“Sure that’s expensive when you compare it to something like a passive investment, but you’re getting so much more if you’re able to get returns and measure the impact of those returns,” he says.

As scale builds, costs will come down, but like any frontier market it takes some early adopters like Christian Super to overcome the chicken and the egg syndrome.

At the Impact Investing Australia’s annual conference at the end of October, Macready announced he’d be starting a funds management consulting business, seeded by Christian Super, specifically to advise asset owners looking to invest in impact investing opportunities.  

Macready will head the new venture — called Brightlight — while continuing to manage Christian Super’s investment portfolio.

“One of the goals of setting up the advisory arm is so there’s a central place super funds can go to be heard about what will and won’t work,” Macready comments.

The main theme to come out of Impact Investing Australia’s conference was the necessity for the industry to build scale to get costs down so it can attract more mainstream super funds.

“Fees as they are now won’t work for super funds,” Macready says. He notes that Christian Super won’t be able to allocate any more than 12 per cent of the fund’s assets to impact investments because of the cost and the liquidity of the opportunities on offer.

Read More: Finsia

By: Matthew Smith