Asian private-equity managers turn to impact investing as demand rises among US, Europe investors, eye stronger returns and fundraising
- Investors in the US and Europe are increasingly favouring investments that comply with ESG principles
- Private-equity managers such as KKR, Quadria Capital are taking the lead in this sector
Private-equity managers in Asia are increasingly turning to impact investing, or investments that generate a social and environmental impact alongside financial returns, in the search for higher returns as well as to attract more funds.
Investors in the United States and Europe are increasingly favouring investments that comply with environment, social and governance (ESG) principles.
“Managers need to stay competitive, because this year and 2020, the fundraising environment will be more difficult. If a manager offers an ESG fund option, it could attract more capital for your fund in a competitive fundraising market,” said Marcia Ellis, a partner at law firm Morrison Foerster based in Hong Kong.
Companies that comply with ESG principles will also benefit from a higher return on equity. According to “ESG matters – US, top 10 reasons you should care about ESG”, a report released by Bank of America Merrill Lynch in September, companies rated highest in the MSCI ESG indices – which ranks companies according to the ESG principles – showed a higher median forward one-year return on equity, at about 17 per cent, compared with about 13 per cent for companies with the lowest score.
AXA Investment Managers announced late last month that it would launch a fourth private-equity impact investing strategy this year. Aiming to raise US$400 million, AXA Investment Managers was planning to invest a third of the capital in South and Southeast Asian companies. These private companies should be focused on addressing the basic needs of consumers, such as promoting access to health care or financial inclusion.
US buyout firm KKR said it has invested US$5.3 billion over the past decade in companies whose business models help advance global, environmental, educational and workforce development as well as solutions to other societal challenges. Its global impact business was, however, created in 2018.
