M&G has launched a private and illiquid debt fund that aims to achieve a positive social or environmental impact in addition to financial objectives.
The fund manager has raised £44.5m (€51.6m) of capital for its fund from M&G Prudential, Big Society Capital and The Swedish Foundation for Strategic Environmental Research.
The group also claimed it was the first fund of its kind. A spokeswoman for M&G said it had not come across any other private debt impact fund that invested across different sectors and aimed to achieve institutional scale.
“To us this is a 10 to 20 year project and the ambition is for this to grow into a multi-billion pound fund,” she said.
Several asset managers have announced new impact-oriented funds in recent months as they seek to capitalise on growing interest among institutional investors for their investments to bring about social or environmental benefits in addition to financial returns.
Examples of new funds include a public equity strategy launched by Hermes, an impact fund launched by Swiss private equity manager Partners Group, and a multi-asset class pool launched by Kempen. The majority of the latter’s investments are expected to be in private and illiquid asset classes, but not just private debt.
M&G has already invested in a regeneration project and several housing associations in the UK, as well as solar power in the US.
“These deals will directly help build houses, provide employment and reduce CO2 emissions,” the manager said in a statement.
A methodology to assess and measure the environmental and social impact of the fund’s investments was developed with Sustainalytics and the asset manager will produce an annual report on these.
Evita Zanuso, financial sector and investor engagement director at Big Society Capital, said: “We are very excited M&G has launched this long-term debt fund that puts social and environmental impact at its core and has great potential to scale and replicate.
“Big Society Capital is keen to support M&G in bringing impact investment to institutional investors and that’s why we have invested £15m from our Treasury portfolio as an early seed investor in this fund.”
GIIN monitors impact investing performance
M&G’s announcement of its new fund came shortly before the Global Impact Investing Network (GIIN), a non-profit organisation working to promote impact investing, published a report on the financial performance of private debt impact funds run by specialist fund managers focused on impact investing.
The report, which was produced with Symbiotics, an emerging market investor, focused only on “independent investment vehicles” that allocated on average more than 85% of their portfolios to private debt.
The sample was made up of funds with a median size of just below $100m (€81m) and included some funds that intentionally targeted below-market-rate returns. Only a few of the funds invested directly in projects and companies. The majority of the sample funds focused on the financial services sector (including microfinance), followed by funds that invested in arts and culture, education, energy, and food and agriculture.
According to the report, compared to other asset classes, the risk-adjusted, market rate-seeking private debt impact funds registered relatively low but stable returns. They generated lower returns than emerging market bonds (2.6% versus 5.4%) over five years to the end of 2016. They outperformed the three-month US dollar Libor more than five-fold, with almost equivalent volatility.
The May edition of IPE magazine will include a special report on impact investing