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Uptake of impact investing 'extremely modest' in UK

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  • Uptake of impact investing 'extremely modest' in UK

UK – The number of UK pension funds pursuing 'impact investment' – investing for the good of members, while achieving positive growth – remains "extremely modest", and only one in five pension funds believes it is within the remit of schemes to pursue such a strategy, according to a survey by Social Finance.

In its report, the company conceded that impact investing was a young market in need of greater understanding within the community.

But it also pointed out that nearly half of its respondents expected to commit funding to projects over the next two years and that assets stemming from impact investing could reach £1bn (€1.1bn) in the UK by 2016.

"Areas of high impact investment growth in the UK will be driven by public sector outsourcing to social sector enterprises and asset transfers from public and private sources to community enterprises," the report said.

It added that pension investors showing an interest in the field would likely target clean energy and social housing, forestry and even microfinance projects going forward.

There has been a growing debate about investment in social housing in recent years, as social housing often offers a form of long-dated inflation protection.

Recently, the UK's Department for Communities and Local Government launched a consultation on increasing the exposure local authority funds can have to infrastructure investments, with general housing investment touted as one of the potential beneficiaries of as much as £22bn in new capital.

Given restrictions on construction, it is likely any such construction projects would include a minimum amount of social housing.

However, the Social Finance report said that, even with a positive outlook, only two of its respondents had so far committed more than £200m to any strategy, with the majority to date investing in green energy.

It also raised the fiduciary duty of pension funds and how a trustee's responsibility complemented the approach.

Referencing a report by FairPensions that argued for a re-definition of fiduciary duty, it asked: "With a 40-year mandate, do pension funds have a responsibility to invest differently from those investing over a shorter term? Do pension funds, particularly those linked to location or profession, have a duty to invest in their community and their environment?"

The report argued that pension funds did indeed have such a mandate, referencing the investment approach taken by the $481bn (€382bn) US pension provider TIAA-CREF.

However, the report concluded that impact investing "should not be afforded special discounts" to attract investors and that it should prove itself through "decent risk-adjusted return", while falling within existing regulations.

For more on impact investing, see Portfolio Impact in the current issue of IPE.

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