21 October 2019
The Australian superannuation fund has 10% of its assets in impact investments. Tim Macready explains its approach
Australian superannuation fund Christian Super says about 10% of its assets are now 'impact investments.
The fund, which has 28,000 members and more than A$1.6 billion ($1.1 billion) in funds under management, says it invests all of its assets responsibly and ethically, in line with Christian values. But a tenth of its investments also aim to generate a positive social or environmental outcome.
By impact investments, it refers to investments that have an intention of making a positive and measurable impact but still make "a market rate of return", explains chief investment officer Tim Macready.
These impact investments are in private markets, says Macready, who doesn't feel that listed equities can be classified as impact investment (see page 12). Its impact portfolio breaks down to about 35% private equity, 25% real assets, and 40% private debt including social impact bonds.
Christian Super made its first renewables investment in 2006 and its first microfinance investment in 2008. Its impact portfolio can now be broken down into themes:
roughly a quarter is invested in financial inclusion including micro finance;
roughly a quarter is invested in renewable energy;
roughly a quarter is invested in real estate, disability housing, social infrastructure, and/or sustainable forestry; and
roughly a quarter is invested in a broad mix of social impact bonds, and frontier emerging markets.
Macready says that, as a fiduciary manager, it can't accept lower returns for its impact investments. But it does provide "more patient capital" and look at deals that are smaller than it would otherwise look at. "Normally, we wouldn't look at A$1 million investments," he explains.
"It seems clear to me that with the intent of purpose around the Sustainable Development Goals (SDGs), the world has given a pretty clear indication of what its priorities are"
"Our allocation to emerging markets is higher than our peers," he adds. "They offer more long-term investment depth. We understand them better because we have spent a lot of time on them."
Impact investments are not only capable of generating market rates of return, but Macready argues that they can have superior long-term prospects.
"It seems clear to me that with the intent of purpose around the Sustainable Development Goals (SDGs), the world has given a pretty clear indication of what its priorities are," he enthuses. "There are things that as a global community we prioritise above raw economic growth.
"That should give encouragement to anyone looking at impact investing, that investing in renewable energy or recycling or enterprises that help lift people out of poverty is pretty consistent with where the world is going. We expect them to perform best over the long run because those that don't perform will struggle."
He says consumers are increasingly voting with their wallets and choosing sustainable or ethical products, such as FairTrade chocolate.
"It seems clear to me that with the intent of purpose around the Sustainable Development Goals (SDGs), the world has given a pretty clear indication of what its priorities are,"
Indeed, Christian Super's focus on impact helps it to attract members: "Upwards of 80% of members when asked say values-aligned investing is a key reason why they chose us," he says.
About two years ago, Christian Super spun out its impact due diligence team into a fully owned subsidiary, called Brightlight, so it can sell its services to other investors, says Macready.
Christian Super invests via 25 funds that invest in 600 companies. It also has nine direct investments where it has taken a significant stake. This is "a small but growing part of the portfolio".
However, it has not invested in any of the large impact funds run by private equity giants such as KKR or Bain.
"We are not invested in the really big funds, largely because we think doing impact correctly requires specialist impact skills," he says. "We find the J-curve in these larger investments can be problematic because it takes quite a while to deploy that amount of capital."
Investments that Macready offers as good examples of Christian Super's approach include the A$7 million Newpin Social Benefit Bond, which helps fund a programme that works with families to break the cycle of intergenerational child neglect and abuse.
Another is an investment in CloudFactory, which aims to connect one million people in countries like Nepal and Kenya to meaningful online work that has been outsourced from other countries.
Perhaps surprisingly, Christian Super said it is only now "in the process of producing our first comprehensive impact report".
"We have published the financial performance of the portfolio, but we have only just reached a point where the impact reporting is mature enough," explains Macready. "One of the big challenges is that 800 portfolio companies are reporting across different methodologies or metrics."