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What’s Holding Back Impact Investing

Impact investors say they need more government support, suitable exit options, and early-stage opportunities, according to a new survey.

The impact investing boom needs more deals that help tackle critical global issues such as access to education and healthcare, gender inequality, poverty, and climate change, according to a Global Impact Investing Network survey. 

While more than half of the investors surveyed made their first impact investment in the past ten years, 32 percent say they find it significantly challenging to find high-quality investment opportunities.

GIIN, a non-profit group, polled 229 fund managers, banks, pension funds, and other institutional investors managing $228 billion of impact-focused assets. Those who responded were required to have committed at least $10 million to impact investments or have made at least five impact investments. 

Investors want more opportunity to invest in early-stage capital, as well as increased government support and more “suitable exit options,” or the ability to find a buyer when they're ready to sell an asset, the survey shows. They have seen the least progress in the availability of suitable exit options, with 40 percent reporting no change in their ability over the past year to sell their impact investment holdings at the desired time. 

“In order to address many of the world’s most pressing social and environmental challenges, we need more investors entering the market and more capital flowing into impact deals,” said Abhilash Mudaliar, GIIN's director of research, in a statement Wednesday on the survey. 

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Twenty-five percent of of investors who responded to the survey said they have seen no progress made when it comes to addressing the challenging nature of finding assets that are early-stage or "patient capital" deals with longer hold times. 

Governments have not made significant progress when it comes to supporting impact investing, according to the survey. Thirty-three percent said they have seen no such progress in areas such as tax credits and subsidies for investors, while 15 percent said their government’s support for impact investing worsened over the past year.

South Asian and European investors were most concerned about this issue, with 42 percent of South Asian impact investors calling it a significant challenge and 36 percent of European investors doing the same. In the United States and Canada, 32 percent of investors surveyed said they believed finding government support was a significant challenge. 

Finding suitable exit options is particularly challenging for South Asian investors. Sixty-two percent of respondents in the region ranked exit options as a significant concern they have for impact investing. In the United States and Canada, 31 percent of survey respondents said this was a significant challenge, while in Europe, 40 percent of investors said the same. 

This is particularly interesting given the swell of participation in the industry: In 2017, those surveyed invested $35 billion in over 11,000 deals globally. The respondents said they expect to increase the amount of capital they invest this year by 8 percent. Perhaps in 2018, at least some of these investors will have an easier time identifying their exit strategy. 

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