Independent private wealth management firm Koda Capital is launching an impact investment advisory service that will guide clients through the process of making investments that generate measurable social and financial returns.
The new service offering, the first of its kind by an Australian investment advisory firm, incorporates market monitoring and due diligence from advisory group Australian Impact Investments, which was selected through a competitive tendering process.
The impact investment advisory capability complements Koda’s existing portfolio of wealth management and philanthropic services, which have been offered by the firm since its formation in 2014.
In a statement, Koda’s head of philanthropy and social capital David Knowles said investors are increasingly aware that their capital can be used not just to prevent harm but to do good, and that impact investing offers them an opportunity to do so without forgoing a financial return.
“This is an extremely positive step for the firm, our clients, and the future of impact investing in Australia. We are delighted to be bringing this capability to clients and we are confident demand for this style of investing will grow significantly in coming years,” Knowles said.
Social Ventures Australia leadership council chair Michael Traill says Koda’s initiative is indicative of the growing interest in the marketplace around impact investment in Australia.
“You’ve got a mainstream high-net-worth advisory taking impact investing seriously and creating market opportunities for clients to do that,” Traill says.
“By having an evaluative process around both the financial and social purpose returns and metrics, will give comfort and confidence to investors who will see tangible evidence of both the financial and social returns being achieved.
“This signifies that there’s an escalating level of interest in doing impact investment transactions, and doing that with the rigour and analysis that professional organisations and investors would expect, and that’s a positive thing.”
Traill says the Australian impact investment market has tremendous potential for growth, but notes that it is currently still at a relatively early stage.
“There’s a range of transactions, many are on the smaller side, but there’s a number of larger-scale deals that have established some transaction and credibility,” he says.
“For example, Good Start Early Learning is the nation’s largest provider of early learning services. That’s a billion-dollar social enterprise.
“That’s created a precedent for more transactions of that ilk where running larger organisations with business disciplines for social purpose can generate the kind of financial returns that pass muster with professional investors and mainstream institutional investors.”
The challenge for the sector, according to Traill, is around creating more transaction opportunities.
“It’s fair to say that there’s more interest in supply of capital than there are currently deals available, so the challenge is around originating and creating more deals,” he says.
For the market to be mainstream, Traill says there needs to be deals that satisfy mainstream superannuation funds.
“For example, Sun Super did a $200 million financing for a faith-based age care provider that provides a good level of returns, and it’s a good example of the larger-scale deals that attract superannuation funds,” he says.
“Separately, Social Ventures Australia has been doing a lot of work in the area of social benefit bonds, for example, and they tend to be transactions that raise in the area of around $10 – $20 million.
“That’s at the smaller end of the scale of superannuation funds, but it’s of deep interest to many high-net-worth investors who are looking at the market.
For investors looking to enter the market, Traill says the usual rules of investment life apply, along with an additional need for transparency around social impact.
“You want to back credible people with a proven track record, you need to be very clear about the financial returns that can be generated,” he says.
“In the area of impact investment, it’s important to be clear and granular about the level of social returns provided.”