According to the Asia-Pacific Wealth Report 2015 by Capgemini and RBC Wealth Management, issued last week, a little more than two-thirds of the high net worth individuals (HNIs) surveyed among the 23 markets in the Asia-Pacific want more social impact support from their wealth managers.
Claire Sauvanaud, senior vice-president, Capgemini Financial Services Global Business Unit, APAC, says: "The demand for advice is highest in China, Indonesia and India. Since a large number of HNIs seek advice from family and friends, wealth managers can involve entire households in social impact discussions."
Wealth managers in India agree their HNI clients are increasingly seeking advice about impact investing. But, support in terms of structured investment options or formal advice is still not available, as it is a new concept.
Arvind Bansal, head, products & advisory, Avendus Wealth Management, says: "We do get clients asking for advice on impact investing but as a firm, we do not have a specialised offering on impact investing."
Agreeing that there is an interest and a desire to contribute socially among HNI investors, Anshu Kapoor, head, global wealth management, Edelweiss Capital, says: "Right now, such investment is fragmented. Usually, investors come to know of projects through word of mouth. Someone hears about a school or a hospital and invests in that."
Aim
The primary desire behind such investment is to have a positive impact on society. As against philanthropy, impact investors look for projects that would become profitable or at least self- sustaining after a few years, says Bansal.
While the traditional way has been to make a contribution and forget about it, now there is a desire to measure the impact and get a report card on how the project is shaping, says Kapoor.
The aim is to make a sustainable difference to peoples' lives, while also guaranteeing some return, even if not highly profitable. Since the investment is at an initial stage, the amounts tend to be small and could be up to Rs 50 lakh.
Projects
Three broad areas that get funds from impact investors are health care, education and job generation. These are firms that would typically find it hard to raise money from other sources. Regular venture or private equity funds might not be keen on investing in projects where there is not much emphasis on profit. Borrowing from banks or non-banking finance companies might prove expensive for these entities.
But, once they get the initial seed fund, it will become easier for them to raise money for subsequent expansion, from other sources.
Kapoor cites the example of a client who invested in a non-profit organisation involved in sourcing pharmaceuticals or essential drugs. Thanks to the investment, the NGO was able to set up an entire supply chain for sourcing drugs, which would help it become self-sufficient in future.
Impact funds vs direct investment
Investors can also invest through impact funds. There are three or four such operating in India.
"For a busy investor who is not a specialist private investor, the fund model is easier because the fund will do the necessary due-diligence before making the investment. If you are investing on your own, do the due-diligence. Visit the project yourself and speak to existing investors," Bansal says.
Since the minimum amount for investing in such funds is Rs 25 lakh, these find it difficult to scale up, as they have to approach a large number of investors to raise a sizable corpus.
Measuring impact
Impact investing is still at a nascent stage in India. The funds are new and have not yet given their returns. Broadly, though, the returns could be higher than fixed income but lower than private funds.
"Impact investors are not really worried about financial returns. They are more worried about efficient use of their money. They are usually happy with minimum return or just the principal being returned," says Kapoor.
One thing investors must keep in mind is the long gestation period in impact investing. If a regular fund gives returns in less than 10 years, an impact fund might take up to 12 years.
To check if your investment is having the desired impact, you will have to put a performance matrix in place. If, for instance, the investment is in an educational project, investors must measure the dropout rate, attendance record or overall performance of students. If the investment is in health care, you can check how many patients are being treated.
