Stockholm (NordSIP) – The advantages of private markets for impact investors are highlighted in a new report from Amsterdam-based investment consultancy the Phenix Capital Group. The more direct interaction with and influence over portfolio companies allows for greater accuracy in setting and measuring positive societal or environmental impacts. This has made private equity and debt vehicles popular with investors seeking to support the attainment of the UN Sustainable Development Goals (SDGs). Phenix Capital examined 358 private debt funds from 201 providers in its latest impact report Private Debt – Funds at a Glance, which was released on July 3, 2023.
Thematic approach to the SDGs
Phenix Capital has created a proprietary mapping of globally accepted impact investing themes against the 17 SDGs. The report reveals that SDG1 (No poverty) is the single most popular target within emerging markets, with 158 private debt impact funds working towards explicit financial inclusion outcomes. Many Micro, Small and Medium Enterprises (MSMEs) in the developing world struggle to obtain financing from banks or other mainstream financial institutions. Depending on the size of the borrower, the investment can be implemented via direct lending, mezzanine finance, or microfinance. Although private debt funds make up just under 15% of Phenix Capital’s Impact Funds Database, they are proliferating rapidly at a growth rate of 219% since 2014. The funds have raised capital amounting to €45 billion, with 67% of the vehicles focused on emerging markets.
The SDGs prioritised by private debt managers in developed and emerging markets differ considerably. Phenix Capital’s report highlights the popularity of SDG7 (Affordable and Clean Energy), SDG11 (Sustainable Cities and Communities) and SDG12 (Responsible Consumption and Production) within global and developed markets. Emerging markets private debt funds are focused on SDG1 (No poverty), SDG 5 (Gender Equality) and SDG2 (Zero Hunger).
A growing institutional investor base
Phenix Capital also breaks down the impact private debt investors by institution type. Foundations are the standout group with 78 investors, with the remainder fairly equally distributed amongst banks, pension funds, government agencies, insurance companies and other institutional investors. The report includes a case study focused on Pensioenfonds Detailhandel, the €28 billion pension scheme for the Dutch retail sector, which has allocated roughly 1% of its portfolio to direct impact investments. In consultation with its members, the decision was made to focus on SDG8 (Decent Work and Economic Growth), SDG12 (Responsible Consumption and Production), SDG13 (Climate Action) and SDG16 (Peace, Justice and Strong Institutions). Henk Groot, Head of Investment at the pension fund said: “Direct impact investments are done with the intention to realise positive social and environmental impact beside the intended financial return. The reason for allocating the 1% to private debt is that we are very familiar with private debt and have enough countervailing power to manage this asset class.” Pensioenfonds Detailhandel’s investment strategy is centred on the belief that responsible investments yield better long-term financial results alongside the targeted societal and environmental gains.
Phenix Capital is planning to publish Impact Reports on other asset classes including infrastructure, Real Estate and public equity later in 2023.
