Impact investors raise $70m to back companies that improve society

Impact Investment Group has said it has taken the first step towards "democratising" impact investing, after raising a new $70 million fund which it said was accessible to a wider group of investors.

Unlike ethical investing, in which an investor deploys funds only to companies it deems to do no harm, impact investors seek out and only back companies which it judges as doing something good for society.

Impact Investment Group, which was founded by former JB Were acting CEO Daniel Madhavan, has $650 million under management and deploys the capital of 500 clients. It invests in a variety of asset classes including real estate, renewable energy, social impact debt and bonds, regenerative farming and venture capital. Its VC investments are made via the Giant Leap Fund.

Most of its clients are high net-worth investors and traditionally these investors would choose to put capital into its real estate, renewable energy or Giant Leap funds.

But its latest fund, Mr Madhavan said, would be more like a "fund of funds" and would give the investors exposure to all of these asset classes. The funds manager will have full discretion to deploy the $70 million in capital across its existing funds as it sees fit.

"Previously people invested in a single strategy, like our two renewable funds, or in the property portfolio they'd be investing in a single building," he said.

"Now, you get diversification with this product.

"There's no doubt there's a growing portion [of people interested in impact investing]. There's many parallels to where ethical, or responsible, investing was 10 to 15 years ago, albeit the next wave."

Impact has a portfolio of 19 start-up investments under its Giant Leap fund, including logistics company Sendle, waste management business Goterra, Amber Electric, and dress hire business GlamCorner.

Throughout the COVID-19 pandemic, both Sendle and Goterra have closed substantial funding rounds and have continued to grow strongly.

Impact is only able to accept money from sophisticated investors, but Mr Madhavan said there was growing interest in this investment philosophy from younger generations.

"Thinking about the decision making of young people, it's so much more heavily influenced by their values and that goes to what they purchase, where they want to work, what they do for work, and it will absolutely include how they invest," he said.

"We're seeing a wealth transfer from Baby Boomers to the next generation, and there is already this shift in behaviour.

"The other thing that can't be underestimated is women. Long gone are the days where all the money goes to the oldest son and women are even more inclined to invest in line with their values."

Opening up a product for retail investors is a consideration for Impact, but Mr Madhavan said it would involve the fund manager getting a different licence, so the fund was also considering if it could partner with another group.

"It's more likely we'll do the latter. But the question is, do we want to support the democratisation of impact investing? And the answer is yes," he said.

While Impact invests in multiple asset types, its capital is weighted most heavily towards debt for high-growth start-ups.

This is in part, Mr Madhavan says, because markets like social impact bonds are very new in Australia, but it's also because it allows the company to return capital to investors more frequently than the likes of venture or private equity investments.

The new fund will aim to deliver a 6 per cent to 10 per cent pre-tax return per annum (after fees and costs).

"I thought very little about [impact investing] while I was at JB Were, I just didn't know it existed," Mr Madhavan said.

"Like many, I thought you made your money over here and then you did good over there by joining a not-for-profit board or volunteering.

"But I went and did some work at a foundation for young Australians and I met all these people who were social entrepreneurs. It completely blew my mind as someone who was deeply interested in business ... that you could do business in this way."