Impact investing seeks to harness the power of markets in order to address the world’s most pressing social and environmental problems. Long the domain of private investments such as venture capital or private equity, impact investing is now expanding to public markets. In our view, public market impact funds fill an essential gap in raising sufficient capital to enable companies around the world working to solve these problems, and broadening the investor base.
We believe that public impact investments have the potential to deliver market-beating returns when disciplined fundamental research is paired with an understanding and measurement of the impact case for each investment. For institutions, public funds can complement private investments, with the advantages of daily liquidity, transparency and typically lower costs. Finally, these funds can provide diversified exposure to sectors, regions, and market capitalisations.
We appreciate concerns about ‘greenwashing’ or the mislabeling of impact funds, so we construct our opportunity set with an authentic, intentional approach. First and foremost, we intend to make the world a better place and aim to deliver strong returns for investors through our investments. The companies we consider must have core business lines that advance one of our impact goals, with corporate strategy, products and services geared towards impact. And the company’s work must fill a need that is not already or easily filled by other entities.
For the Wellington’s equity and fixed income impact approaches, we have identified 10 investible impact themes. Though developed before the UN’s Sustainable Development Goals, our themes align closely with them.* Life essentials – Affordable housing, Clean water and sanitation, Health, Sustainable agriculture and nutrition
- Human empowerment – Digital divide, Education and jobs training, Financial inclusion
- Environment – Alternative energy, Resource efficiency, Resource stewardship
Impact investing has its challenges. Investment horizons are necessarily longer — it’s impossible to change the world in a few months. Return volatility can be well above the market average, given these companies’ typically uneven growth paths and reliance on disruptive technologies. For these reasons, we believe that considered portfolio construction policies and careful risk management are crucial to impact approaches.
Louise Kooy-Henckel is Investment Director at Wellington Management
This article was sponsored by Wellington Management and RI editorial staff were not involved in the creation of this content
For more information on Wellington Management’s approach to impact investing, please contact:
Camiel de Vries
+44-20-7126-6417 | CdeVries@wellington.com
+44-20-7126-6070 | NJStaunton@wellington.com
Wellington Management is a globally integrated asset management firm with over US$1 trillion in assets under management worldwide as at 31 March 2018. We have been providing investment solutions to clients for over 80 years.
There is no guarantee an investment strategy will be successful. Investing involves risk, and an investment could lose money. Before investing, all investors should consider the risks that may affect their capital. The approach’s principal risks include:
CONCENTRATION: Concentration of investments within securities, sectors or industries, or geographical regions may impact performance. CURRENCY: The value of an investment may be affected by changes in currency exchange rates.
EMERGING MARKETS: Emerging markets may be subject to custodial and political risks, and volatility. Investment in foreign currency entails exchange risks. EQUITIES: Investments may be volatile and may fluctuate according to market conditions, the performance of individual companies and that of the broader equity market.
HEDGING: Any hedging strategy using derivatives may not achieve a perfect hedge.
SMALL AND MID–CAP COMPANY: Small and mid-cap companies’ valuations may be more volatile than those of large cap companies. They may also be less liquid.
Please refer to the investment services description or prospectus for a full list of risk factors.Disclaimer:
This material and its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase, shares or other securities. Investing involves risk and an investment may lose value. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed are those of the author(s), are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. This material is provided by Wellington Management International Limited (WMIL), a firm authorised and regulated by the Financial Conduct Authority (FCA) in the UK. In Germany, this material is issued by Wellington Management International Limited, Niederlassung Deutschland, the German branch of WMIL, which is authorised and regulated by the FCA and, in respect of certain of its activities, by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Fund shares may not be distributed or marketed in any way to German retail or semi-professional investors if the Fund is not admitted for distribution to these investor categories by BaFin.