In other words, can an investor like Patsky be confident of selling his impact investments when hes ready? And will he know what those investments are worth? Right now the market is so fragmented that he and others hesitate to answer yes to either question.
Impact investing could offer between $400 billion and $1 trillion worth of opportunities in housing, water, health, education and financial services through 2020, according to a 2010 report by J.P. Morgan and the New Yorkbased Rockefeller Foundation. There is a tremendous amount of interest in this space coming from institutional investors, family offices, high-net-worth individuals, private equity firms and pension funds, says Robert Rubinstein, founder and CEO of TBLI Group, an Amsterdam-based advisory firm best known for its events promoting triple-bottom-line investmentsthose with financial, environmental and social benefits. But they simply dont have the infrastructure to find the investments.
A few shops have set out to build that infrastructure. In March 2011, Singapore-based Impact Investment Exchange Asia (Asia IIX), run by former Morgan Stanley colleagues Robert Kraybill and Durreen Shahnaz, launched a platform called Impact Partners. For an annual subscription fee, Impact Partners gives investors information about social enterprises throughout the Asia-Pacific region. Chosen for their financial viability and their social or environmental impact, the enterprises featured on the platform focus on everything from microfinance to fair trade to sustainable agriculture.
Kraybill stresses that Impact Partners is not a transaction platform; its meant to help increase deal flow by making it easy to source impact investments. But Asia IIX and Singaporean regulators are discussing plans for Impact Exchange, a platform that would more closely resemble a traditional stock exchange.
New Yorkbased Mission Markets, a sustainability-focused financial services firm, launched the current version of its Access platform in August. Dedicated to U.S. enterprises, Access differs from Impact Partners in two other crucial ways. First, it offers business advisory services to the companies it lists. Second, it lets clients invest directly through the platform, but only on primary capital-raising; that is, investors cant trade with one another, just with the social enterprises. Although Mission Markets platform will eventually support secondary market trading, the current size of the impact investing sector doesnt warrant it, president and CEO Sam Salman says.
GATE Impact, due to launch publicly early in 2012, will feature secondary trading as well as capital-raising and investment listing. A step closer to a typical stock exchange, New Yorkbased GATE is the only one of the three platforms registered as an alternative trading system that will allow for live orders and order matching.
President William Davis is focusing on investorsmostly big institutionsthat can bring their impact investing portfolios onto the platform with them. At launch, Davis says, GATE Impact will list available impact investment deals of between $500 million and $1 billion. By comparison, the social enterprises on Asia IIXs Impact Partners platform have sought to raise a total of about $70 million.
Davis says GATE Impacts size and its ability to support a secondary trading market will be crucial to the success of the entire sector. We hope we can help move the ball forward by providing a new level of transparency and efficiency, he explains. Over time, as more transactions occur and more assets are being listed, you end up creating a more liquid marketplace.
Trilliums Patsky worries that a handful of groups developing exchangelike platforms for impact investing could further fragment an already disjointed market. But Davis and Mission Markets Salman say their firms work together on deals that require shared expertise.
Its a nascent asset class, and if one major player fails, it stigmatizes the whole industry, Salman notes. Everyone wants this space to get to the point where its deep enough and liquid enough to be a real asset class, and anyones success reflects the industrys growth and maturity.