One of the hottest trends within the City’s investment community lately has been impact investing; capital flowing into companies, entities and funds with the intention to generate a measurable, beneficial social or environmental impact.
To many institutional investors and pension funds, impact investments are increasingly becoming the standard so this type of investments is more and more the beating heart of any ESG-led strategy in the City and beyond.
One of the leading names, globally, in this field is Peter Fanconi, chairman of BlueOrchard, an impact investment management firm with offices in the City and Zurich.
Much of BlueOrchard’s success is Fanconi’s: the 53-year-old banker joined as CEO in 2013 and played a key role in expanding the firm’s business into new asset classes, including private equity and sustainable infrastructure, which helped to popularize what was a niche theme at the time for institutional investors.
BlueOrchard’s Microfinance Fund was the first commercial microfinance fund in the world, managing nearly $2.5bn, supporting roughly 200m people in across Asia, Africa and Latin America.
Before Fanconi joined BlueOrchard, he was a member of the board of Deutsche Bank and served as CEO of private banking at Bank Vontobel from 2009 to 2012 and as CEO of Harcourt Investment Consulting from 2003 to 2009, which he also founded. Prior to that, he was a managing partner within the Corporate Finance division of PricewaterhouseCoopers in Switzerland.
City A.M. sat down with the experienced fund manager, banker and investor, and went over a range of issues that are on investment managers’ minds, from impact investing to the pandemic, and from Brexit to equal opportunities.
Everyone has something to say about ‘impact’ investing these days. It has become the go-to buzzword for corporate firms and investment platforms. Surely profitability is still on every investor’s mind, at the end of the day?
The main point is that impact investing should not be equated with philanthropy. Impact investing is about a conscious and intentional decision to invest in order to achieve a measurable social and/or environmental impact, while at the same time achieving positive financial returns.
Impact investing also attracts different-minded investors, those that are primarily focused on impact and others who want to diversify their portfolio and receive decorrelating attractive returns.
For sure, there is nothing wrong with being focused on returns, quite the contrary, only an institutionalized, well researched and developed asset class allows for coverage and large flows. Growing impact investment demand will lead to the deployment of more capital and eventually bridge the current investment gap in areas like climate change, financial inclusion, education and healthcare.
Do you think impact investments will become increasingly the standard, in the years to come, particularly for institutional investors and pension funds?
Absolutely, there is no way around it for different reasons, including the financial benefits, such as diversification of a portfolio, stable returns and so on, demand from society, bottom-up, role of millennials and women, and also regulatory changes, such as the EU green deal and EU Taxonomy.
Green and impact washing is threatening the credibility of the impact investing industry
Dedicated Asset Managers must have robust impact management tools and instruments in place. For sure it is not an easy fix. At BlueOrchard we have researched for over 20 years not only how to measure impact but also what can make a difference. Today, our tools and our experience are state of the art in the industry.
The pandemic has changed everything: suddenly ESG goals – such as climate change – did not seem to be a priority anymore. Have you noticed that as well? How has that impacted your investment decisions?
You are right. Climate change would have definitely been higher on everyone’s agenda in 2021 were it not for the pandemic. But by now everyone has understood that despite some short-term beneficial consequences like the lock down of air and car traffic, the UN Sustainable Development Goals remain unsolved and need to be tackled more than ever. The effects of climate change, inequality, financial inclusion, education and health care will dominate our society and investment decisions for years, if not decades, to come.
Your firm’s microfinance fund manages nearly $2.5bn, the largest of its kind. Has raising funds become much more challenging since the pandemic?
In our investment space the pandemic had a marginal influence on fundraising, as investors are seeking safe haven investments and investments with a cause. Last November, in the midst of the second Covid wave in Europe, we launched the first ever Covid-19 support fund that aims to support more than 200m jobs in emerging and frontier markets. The fund is backed by prominent public and private investors such as Schroders, the CDC and other global development finance institutions from the US, Japan and Europe.
Before Brexit, the City of London was the beating heart of Europe’s banking and investment community. Do you expect that to change in the years to come?
Not at all. Similar to Switzerland, the UK and the City will emerge from Brexit stronger and healthier. The country and its protagonists will have to adapt and it might take a couple of years, but adapting to change has always been a strength to the financial industry.
You have worked in banking, finance, consultancy: do you feel most financial services firms have a serious strategy in place when it comes to diversity and equality, or is it merely hollow talk? For example, look at differences in pay.
Times have changed, more and more companies and institutions are putting serious strategies in place to tackle inequalities. Do I believe firms are doing this out of conviction? No, is my blunt answer.
Only few have actually changed their DNA, for many others it’s more a reaction to public and regulatory pressure. However, this not being a bad thing at all, since they act as accelerators.
In the past years, BlueOrchard has been approached by numerous institutional players that sought to enter into a partnership with us. Schroders, led by its charismatic CEO Peter Harrison, was the only player able to credibly demonstrate its sustainable and long-term perspective as a leading financial player. They have a very clear strategy in place fighting inequality and supporting diversity throughout the organisation.
Looking ahead at 2021 and beyond, what are your main financial predictions for this year and in the long-term?
Let me answer this question from an impact and emerging markets perspective: The pandemic has not diminished the importance of longer-term themes such as the ongoing fight against climate change and inequality. The world’s population continues to grow rapidly, consumption is increasing. Emerging market populations already make up for 65%. This creates considerable very attractive investment opportunities, infrastructure and Private Equity just to name two of them.
Furthermore, impact bonds continue to look very attractive relative to investment grade credit in developed markets. Being a thorough believer in active asset management, finding that value depends on being selective, but as the market in social, impact and green bonds continues to grow, the range of potential outcomes is continuously widening.
Anything else you would like to share with our readers?
Over the past 20 years impact investing has proven it is possible to do good and still earn money. The direction the financial industry is taking – towards more sustainable and impact investments is good for returns, for our society, the planet and our future. This is the only way forward!