How Investing Fund Managers impact on fund management?
While it is ultimately crucial if a fund achieves its effect and financial goals, asset owners and investment advisers should focus their due diligence on understanding the internal workings of an impact investing fund until this can get adequately assessed. The following main aspects that influence impact investment fund managers’ decision-making could get examined in particular:
Impact investors, like other investment funds, are involved in three primary activities and decisions: establishing a fund investment strategy, raising cash, and investing. An investment committee (IC) or board, managing partners, investment managers, and other staff such as sector experts, associates, and assistants are often included in fund management organizations to fulfill these responsibilities.
Few people can be long-term, seasoned impact investing specialists because the field is still in infancy. Investment banking, venture capital, asset management, strategic consulting, development organizations, philanthropy, and development work are possibilities for board members, managing partners, and investment managers. These professionals make choices based on their upbringing and socialization, according to Joseph Stone Capital. Such variation in backgrounds, if not controlled correctly, might lead to unforeseen consequences based on unintentionally differing attitudes. Preconceptions should get freely challenged to leverage diversity as a source of innovation rather than an internal lack of clarity.
Effect investors may have to choose between impact and higher financial rewards. For example, an impact firm can reinvest revenues into growing its impact or cross-subsidize lower profit regions and avoid paying out early or higher in the short term to its investors.
Asset owners should evaluate impact investment fund managers’ capacity to promote significant dialogue between the two (or three) camps of managing double or triple bottom lines.
- Business Model
To understand the manager’s decision-making process and investment strategy, asset owners should look into the composition of a fund’s investor base. Acumen Fund, for example, focuses on foundations and philanthropists as limited partners (LPs).Whereas Bridges Ventures, a specialty fund manager, attracts cash from institutional investors seeking a financial return. If a single wealthy individual is the fund’s primary investor and covers the fund’s operational costs, that individual’s assessment of a potential portfolio company’s social impact may be more crucial than other decision points in the well-structured investment process.
- Practiced governance
Understanding fund governance requires more than just a look at the fund’s ownership structure; it also necessitates consideration of fund manager performance incentives, expertise distribution within the fund management, and the fund’s organizational structure.
Impact investment funds may have staff spread across the globe, with regional offices in charge of transaction screening, negotiations, and portfolio company post-investment support. Some impact investing funds have teams, but others keep decisions at the fund manager’s headquarters. A fund’s activities get influenced by the degree of decision-making dispersion across the globe. The ability to adapt a fund’s strategy to the local circumstances gets aided by independence, according to Joseph Stone Capital. While this may assist fund managers in aligning with local conditions, it is more complex to stick to a single, global fund strategy that can get articulated to asset owners interested in investing in a fund.
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