• 60% of respondents said they saw private equity as the most effective vehicle to drive impact.

• Pensions for Purpose urges asset managers to innovate, by enabling DC pension schemes to adopt impact private equity within their fee limits.

• Evidence reveals there is unmet potential for asset management groups to reach for in this asset class.

28 June 2023 (London) – New data on the shift in attitudes of major UK local government pension (LGPS) and defined contribution (DC) schemes towards impact investing in private equity was released today, in a study conducted by Pensions for Purpose and sponsored by Columbia Threadneedle Investments. Pensions for Purpose is the fast-growing, Certified B Corporation which helps pension funds invest for positive impact.

Their research finds pension funds' primary motive for impact private equity investment is to secure a more sustainable future which benefits their portfolios (33%). This is followed by the pursuit of a solid risk and return profile (25%), boosting member engagement (17%), moral imperatives (17%) and lastly, to align with the government's 'levelling-up' initiative (8%).

The research dispels the myth that impact investing necessitates a compromise on returns. In fact, many pension funds have taken the view that impact investing has material financial benefits. Further reinforcing their financial orientation, the study reveals impact-focused pension fund allocations (67% of funds interviewed) screen the private equity fund's impact first, when selecting managers, but their expected market-rate returns remain undiminished.

The study observes a trend towards locally oriented UK impact investment and warns against a narrow geographical focus, imploring pension funds not to restrict themselves to UK impacts alone. Highlighting the urgency of global issues such as the net-zero transition, the study underlines the importance of maintaining a global outlook.

Just under half (43%) of pension funds surveyed are invested in impact private equity. Some pension funds not invested in impact private equity thought it was the best vehicle for delivering positive impact, suggesting there may be unmet potential within the sector.

The research also highlights an interesting discrepancy in limited partners’ (LPs’) understanding of 'additionality', an important feature of impact private equity. Despite its significance, LPs lack of understanding of the topic and the difficulties evidencing it meant that additionality was frequently treated as a less critical impact characteristic and consequently, most pension funds surveyed – erroneously – do not seek it. Additionality refers to determining if a beneficial societal change, like improved access to healthcare, would have transpired without the participation of the investor. This highlights a potential for additional education and understanding among pensions trustees.

The study calls on asset managers to devise innovative strategies that enable DC schemes to include impact private equity within their fee limitations. This could significantly broaden the number of pension schemes that can contribute to solving global problems, while simultaneously delivering financial growth.

Karen Shackleton, Chair and Founder of Pensions for Purpose, commented: "While our research clearly shows the majority of pension schemes - 60% - view private equity as the best vehicle for achieving impact, there's still room for growth in understanding concepts like financial additionality. It's important to recognise that pension schemes are primarily impact investing for financial reasons, but they are also increasingly focusing on UK impact, likely driven by the 'levelling-up' agenda and improved member engagement. However, we advocate a global perspective on impact investment to meet crucial targets such as the net-zero transition. Asset managers can be pivotal here, by creating innovative strategies that make impact private equity accessible for DC schemes within their fee boundaries."

Cameron Turner, Research Analyst for Pensions for Purpose, said: “Our study illustrates a shift in pension fund attitudes towards impact investing in private equity. It's clear they view this approach not merely as a means to a financial end, but as a vehicle to drive a sustainable future. This underlines the critical need for impact investments to tackle global challenges, encourage engagement with members to secure financial growth. However, there's a need for concepts like 'additionality' to be more widely understood and for innovative strategies to accommodate DC schemes.”

Andrew Carnwath, Director and Head of Impact, Private Equity – Columbia Threadneedle Investments, said: “The study's findings show the increasing potential of global impact private equity to deliver robust returns and drive positive impact. It is promising to see impact private equity emerging as a core component of investor portfolios, with pension funds looking for solid returns whilst making a positive contribution to society and the environment. While the research indicates a bias among pension funds for UK impacts, the broader benefits of maintaining a global investment perspective should not be overlooked."

The full findings of the research can be accessed here.

ENDS

Notes to editors

About the research

This research aimed to delve deeper into why private equity is an attractive vehicle for impact investing, which impact themes pension funds prioritise and where they prefer their impact to occur geographically, amongst other viewpoints and attitudes from survey participants towards the asset class. The study encompasses the viewpoints of 17 pension funds, primarily LGPS and DC master trusts, along with five investment consultants. It should be highlighted that the number of respondents varied per question, affecting the quantitative data sample size.

About Pensions for Purpose

Pensions for Purpose exists as a bridge between asset managers, pension funds and their professional advisers, to encourage the flow of capital towards impact investment.

Impact investments align with the environment and society. Pensions for Purpose seeks to empower pension funds through our online member platform, from which we deliver training, afternoon teas and events, member forums and a unique curated Knowledge Centre.

www.pensionsforpurpose.com 

About Columbia Threadneedle Investments:

Columbia Threadneedle Investments is a leading global asset manager, entrusted with US$608bn / €559bn £491bn ^[1] on behalf of individual, institutional and corporate clients around the world.

We have more than 2500 people including over 650 investment professionals based in North America, Europe and Asia ^[2]. We offer our clients a wide range of strategies across equities, fixed income and alternatives, as well as specialist responsible investment capabilities and a comprehensive suite of solutions.

Columbia Threadneedle Investments is the global asset management group of Ameriprise Financial, Inc. (NYSE:AMP), a leading US-based financial services provider. As part of Ameriprise, we are supported by a large and well-capitalised diversified financial services firm.

www.columbiathreadneedle.com

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^[1] Source: Ameriprise Financial Q1 2023 earnings release

^[2] As at 31 March 2023, Columbia Threadneedle Investments

About the research participants

The survey sought the views of 17 pension funds - with a focus on LGPS and DC master trusts - and 5 investment consultants.

Contact:

Daniel Jason / Shreya Juyal at Material Impact Marketing Communications
Email: [email protected] / [email protected]
Mob:  +44 (0)7484 609097 / +44 (0)7484 609097


This item was covered in:

ESG Investor
ESG Clarity
Funds Europe
I&PE
Impact Investor
IPEM
New Private Markets
Pensions Age
Pioneers Post

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