At the recent SOCAP10 conference I had the opportunity to present some of our recent research on the individual impact investing market. This blog post, along with the accompanying slides, will hopefully serve as a brief summary for those unable to attend the panel on “Connecting Private Capital Markets to Impact Investing Opportunities”. <br />Our study, conducted earlier this year, surveyed 4,000 Americans with household incomes of $80,000 and above. Our goal was to understand their interest and demand for impact investing, and then to determine what we need to do to unlock this market for individuals. <br />To start, there’s a strong interest among everyday investors in impact investing. Only one out of eight people surveyed had no interest in these products. Based on this interest we calculated a market opportunity of $120 billion for impact investments among individuals. <br />What is interesting about this demand is that it is concentrated in small dollar amounts: 95% of individuals, representing half of the $120 billion, are interested in initial investments of less than $25,000. Interestingly, this holds true for even the very wealthy: well over half the individuals studied with household income of over $1 million a year still want to make impact investments of $25,000 or less. So, while many people are interested, they only want to allocate a small portion of their portfolio to impact (at least for now). <br />Investors are looking for different things in their impact investments. Specifically, Americans break out into six investor segments. The largest three, which we named Safety First, Socially Focused, and Quality Organization, represent over 80% of the market in terms of both people and dollars. Each of these segments has different priorities for their impact investments (see slide 3), and as this market matures, product offerings will need to be tailored to these segments to fully reap the market’s potential. <br />So, what is holding investors back? We found five barriers that each of the segments we put at the top of the list. Interestingly, the five barriers are all related to the immaturity of the market, not the social or environmental impact investments are having (see slide 4 for the full list). <br />This is a new market with little information, especially among mainstream investors. In order to unlock this market potential, we need to do three things: <br /><ul><li>Build out infrastructure and information. There is very low awareness of these investments among individual investors and their advisors. They need to know what the opportunities are, how well they have performed, and where they can invest in them. New initiatives, such as the Global Impact 50 Index will provide the information and attention required to begin to open up this market.
Develop new products. There are few products on the market today that meet investors’ desires to get started with small dollar investments. The Calvert Community Investment Note is the standard bearer for the market, but new products are being innovated, such as the $1.25B retail fund envisioned by TriLinc Global, which will have a $5,000 minimum investment and will be open to non-accredited investors.
Distribution. The financial advisor is by far the most critical source of information for individuals when making impact investments. Yet right now advisors have real barriers to getting into this market and selling these products to their clients, including: inadequate information; inability to speak to the opportunities; lack of availability of products on their platform; and compensation and incentives. We need to study and address the barriers facing advisors, from the gatekeepers to the brokers and RIAs. </li></ul>We look forward to working with leaders in the field to open up the impact investing market for individuals. <br /> <br />