Christian Super is launching an impact investing consultancy and investment management firm, a first in the Australian superannuation industry and possibly globally.
The move reflects its long-standing commitment to ethical investment under which it screens all of its A1$bn (€716m) in assets and commit 10% of its portfolio to social impact investment.
Speaking to Responsible Investor, Tim Macready, Chief Investment Officer at Christian Super and now Managing Director at the new consultancy and investment manager – dubbed Brightlight – says Christian Super has made 18 impact investments so far in a mix of funds and direct deals. The fund says 100% of its investments are ethically screened based on values in the Bible.
These include clean tech and a health fund. It was also one of the first investors in social benefit bonds, the country’s version of social impact bonds where private investors fund the delivery of a social intervention, in the hope of a financial return if measured outcomes are met. Typically ‘outcome payers’ are government departments.
Macready admits that Christian Super’s involvement in social benefit bonds was a huge amount of work and it spent a significant amount on due diligence on its first deal [between A$25k and A$50k] but he says the fund felt it was important to understand the burgeoning asset class “with a huge amount of potential”.
The social benefit bond, seeking to prevent children from being placed in foster care or restore them from care to their families, is in operation in New South Wales, who is acting as the outcome payer. Christian Super invested A$850,000 in the A$7m deal.
There has been a cumulative restoration rate of 61% for children supported by the programme. It paid investors a 7.5% return in its first year, 8.9% in its second and a return of 12.15% in its third year.
Double-digit returns are rare in today’s low-interest rate world, but Macready says it is not an inappropriate return. “Over time we will see what they [social benefit bonds] can do. If there is stable performance and a level of capital protection, returns will drop down. The current social benefit bonds allow enough of a margin of error, it is fairly conservative with a return cap at 15%.”
In structuring the social benefit bond deal it helped that Christian Super was already familiar with service delivery organisations and counterparties.
“The original RFP for the social benefit bond was unworkable,” he says. “We worked with the counterparty and said ‘if you want institutional capital this is what it should look like’.”
Building on this pioneering work, Christian Super has set up an impact investment consultancy and investment manager to catalyse the market. It has been set up with a loan from Christian Super who will be a majority shareholder. A separate entity, the Brightlight Foundation, is also being set up which will be a minority shareholder and have a mission of helping people to live with financial health and understanding, by encouraging financial literacy and helping with debt management.Christian Super is Brightlight’s first client.
It has been set up to deal with three barriers to impact investing, says Macready.
Firstly, the perception that there are no viable impact investing deals. Macready says he knows this to be false, saying: “We do not have enough resources to look at all the deals that we want to do.”
Secondly, it wants to challenge the view that impact investment is inconsistent with fiduciary duty and thirdly it wants to tackle the lack of ability to do due diligence.
“We want to break down barriers,” says Macready. “Mainstream consultants don’t have the capability and there is not yet enough demand individually to do it.”
Alongside investment advisory, Brightlight will have an investment management business charging an asset-based fee on the pool of assets managed on behalf of clients. Its first product is likely to be the Brightlight Australian Equities Trust.
Macready has partially left Christian Super and over the next 18 months will allocate some of his time as managing director of Brightlight. When it becomes operationally sustainable the board will decide on the best way forward. Brightlight has seven staff and has ambitious plans to be international. It already has a presence in London and wants to expand further to Singapore, Africa and the US.
As well as Christian Super as a client, Brightlight is assisting Australia’s Department of Foreign Affairs and Trade (DFAT) as it prepares to launch a South East Asia impact investment fund.
The Emerging Markets Impact Investment Fund aims to deploy $30m of DFAT aid funding into impact investing, with the goal of catalysing additional private capital into outcomes-focused investments. DFAT has also launched other impact investment-focused programs, including the Pacific Readiness for Investment in Social Enterprise, or Pacific RISE, which aims to raise at least A$5m of new private investment capital into the Pacific over the next three years. Macready says it will advise it on how to structure deals which are attractive to institutional investors.
It comes as Australia’s Treasury department has launched a discussion paper on developing its social impact investing market, including what role the government should play, what are the principles of social impact investment and interestingly what guidance would provide clarity on the fiduciary duty of superannuation trustees on impact investing.
Macready says: “Impact investing is increasingly becoming recognised as part of the solution to some of the world’s greatest challenges. It’s encouraging to see the Australian government continuing to explore how impact investing can be used to achieve positive social and environmental outcomes both within Australia and across the world. We were delighted to provide a submission and are looking forward to seeing the final paper when it is released.”