Wanted: Investment Champions for the Canada Impact Investment Fund
At about $4.5 billion, impact investing is growing in Canada – it’s just not growing fast enough.
The Social Investment Organization (SIO) recently released Impact Investing in Canada: A survey of assets. The study found $4.45 billion in impact investing assets in Canada, a dramatic increase from $1.4 billion only two years earlier. This includes community loan funds, credit union community investments, international impact investments, aboriginal financial institutions, Community Futures Development Corporations (CFDC) and investments through development capital and solidarity finance institutions in Quebec.
The increase is massive, but the report cautions against concluding that this represents a major boost in impact investing activity. A large part of the increase was an expansion in the range of investment institutions surveyed. Newly-identified assets included development institutions in Quebec and many credit union community investments. Growth was found primarily among the community loan funds, aboriginal financial institutions and CFDCs.
Given the large need for new capital for social enterprise – estimated to be between $450 million and $1.4 billion – it’s clear that the recent growth in impact investing has not been sufficient to meet demand. The report states that “the bulk of available evidence suggests that the Canadian impact investing field is significantly undercapitalized.”
That’s the thinking behind the recent Canadian Social Finance Task Force recommendation to create the Canada Impact Investment Fund. The Canada Impact Investment Fund is a concept (not yet operational) to create a fund to invest in regional community loan funds, social venture capital funds, and other financial vehicles serving the social sector. The idea is to create a capital pool for investment in local funds that would be diversified in terms of region, as well as serving a variety of impact investment mandates: micro-enterprise, non-profit social enterprise, social housing, charity financing and social purpose businesses.
Such a fund would address a major gap in the market for investment opportunities sought out by high-net worth social investors, foundations, trusts and other socially-conscious investors. It would also meet an urgent need for development capital by social enterprises.
The SIO has been looking into this idea for about a year. Our task was to investigate the feasibility of such a fund, and to create a “road map” for how to implement it. The feasibility study and “road map” are now complete: The Canada Impact Investment Fund – an overview for stakeholders is a brief outline of the concept.
The feasibility study demonstrated that the fund shows promise. Financial modelling demonstrated that a fund with two-year startup funding and some liquidity supports from government could generate returns of six per cent for investors, well within expectations for risk-adjusted returns. With $10 million invested each year for a decade, it is expected that the fund will reach assets of $100 million.
What the fund needs now is a champion to bring it to reality. The “road map” calls for a group of founding investors to step into this champion role. Five to 10 initial investors are needed, investing an average of between $1 million and $2 million, providing $10 million in Year One investment. With this level of support, it is expected that governments or other public funders would follow through with the startup funding and liquidity support needed to launch the fund. Once launched, it is expected that followup investments of at least $10 million annually would be easily achievable.
The Canada Impact Investment Fund is a practical and accessible idea to get capital into the hands of community funds across Canada that can then carry out urgently needed local investments. What’s needed now is a group of investors to turn this dream into a reality.
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