The announcement that British asset manager Schroders would acquire a majority stake in the impact investing firm BlueOrchard Finance is the latest evidence that legacy asset managers are increasingly looking to beef up their sustainability bona fides, though whether acquisitions become the preferred path remains to be seen.
Zurich-based BlueOrchard was founded in 2001 as the first commercial manager of global microfinance debt investments, according to its website. It has since invested more than $6 billion in debt and equity financing in institutions working toward “inclusive and climate-smart growth” in emerging and frontier markets.
This sustainability-focused and relatively brief history contrasts with that of a legacy firm like Schroders, which was founded in 1804 and completed a millennial-friendly rebranding shortly before the BlueOrchard announcement last week.
“While many large asset managers have employed partnership models in emerging markets, this transaction is one of the few direct acquisitions of an existing impact firm we have seen,” said Jeff Schlapinski, a senior director of research at the Emerging Markets Private Equity Association, in an email to Karma.
Analysts have observed a growing trend of asset managers entering the socially responsible investing space in response to the demand from pension funds and other investors for socially responsible products — some by developing in-house capabilities.
Earlier this week, for instance, Morgan Stanley announced that it would be rolling out a new proprietary ESG monitoring platform to help its financial advisors and clients track the impact of their portfolios.
Though it may be tempting to look at Schroders’ new acquisition and rebranding as a PR effort, it may instead signal a new era of growth if it follows the path of Goldman Sachs, which acquired impact investing firm Imprint Capital in 2015. Since that acquisition, Goldman has scaled Imprint’s $550 million portfolio to more than $27 billion in ESG assets under management, culminating in a July announcement of a new C-suite-level Sustainable Finance Group.
“The fact that mainstream or traditional asset managers are looking to make inroads in the impact space is testament to changing preferences among investors and to the outcomes impact-focused organizations have achieved,” said Schlapinski.
The growing perception of impact investments as a solid long-term investment has been fed by the sector’s rapid growth — the Global Impact Investing Network estimates the market size at $502 billion, a nearly 50% increase from 2014 — and by the performance of dedicated impact firms like BlueOrchard. The firm was previously included on the IA 50, a list of the top 50 impact investing firms updated annually by Impact Assets.
“We have seen strong, steady organic growth among the fund managers who make up the IA 50,” said Sandra Osborne Kartt, investment director for Impact Assets. “This is a diverse and tested group of fund managers that are delivering environmental and social impact as well as solid investment returns.”
None of the current IA 50 are under acquisition, Kartt added, but six have more than $1 billion AUM, two-thirds have more than 10 years of fund management experience, and 94 percent have met or exceeded their expected market-rate returns.
