Secondary markets key for Impact Investing growth
While Mission Markets and Impact Investment Exchange Asia have pioneered private platforms for sourcing and channeling deals to investors, GATE Impact now plans to provide a trading platform that will allow investors to trade shares of the companies listed, much like any other stock exchange.
President William Davis is focusing on investors—mostly big institutions—that 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 IIX’s Impact Partners platform have sought to raise a total of about $70 million. [Source]
But do impact investments need “hot money”? It’s hard to know what the trading behavior would be like on such an exchange, but there is an advantage to being a private company, the ability to look long- rather than short-term chief among them.
I do think a secondary market will be very important to the industry, especially given the fear of many that there will be limited opportunities for exits. At the same time, I wonder if what the industry needs is an active private equity secondary market, with secondary buyers purchasing stakes in existing investments or funds themselves, allowing the initial investors to achieve at least partial exits.
Given the concern about exits, I would think that a secondary buyer could play a catalytic role in the industry, increasing the confidence of concerned potential investors and providing exits for initial investors that will allow them to make additional investments in the space. The role of the secondary buyer is indeed to provide an exit for the initial investor before the investment itself achieves an exit (e.g., M&A, IPO, etc.), and given the patience required for “patient capital” impact investing, the off ramp provided by secondary buyers could prove crucial to getting mainstream institutional investors on board. Unlike the proposed stock exchange, it won’t expose the businesses themselves to hot money.
In addition to a secondary private market, capital could be channeled through a trading exchange that listed social investment funds rather than the investments themselves. There are legal concerns given the non-profit status of many social investors, but it’s an idea worth considering.
The $400 billion to $1 trillion question is how to translate investor interest into active investments. An active secondary market and a platform for funding the funds may help (responsibly) tap those resources.
If you have any thoughts or comments, please send me an email at: cdp283 at nyu dot edu.
Previous Posts on the challenge of Social Performance Measurement:
- Cost-effective Impact Assessments for the Impact Investor
- Separating the Gold from Pyrite: Analytical Rigor and the Potential of Impact Investing
- Impact Investing in Rigorous Analysis