Australia is ready for a more sophisticated market in impact investing according to Michael Traill, who has spent almost two decades encouraging Australians to invest for profit — and good.
As the chair of the federal government’s task force on social impact investing — investment measured by both financial returns and success in a social objective — Traill argues the nation needs to scale up for a potential $60bn market by setting up a “wholesaler” to bring deals to potential investors.
The task force has just presented its final report to the government and while its recommendations are still under wraps, Traill tells The Deal the group has identified the need to develop the “architecture” of the market to offer more products to investors such as superannuation funds, foundations, philanthropists and those prepared to accept a “below conventional risk return”.
“I think there is an appetite for larger scale impact investing,” he says. “There’s been an evolution and a set of developments over the last decade that would suggest that this market is ready for that but it would need some encouragement and stimulation for that to happen.” Till now most investments of this sort in Australia are about $50,000 to $10m but Traill sees potential for a spread of investments with up to $50m at the top end.
He says some industry superannuation funds, such as HESTA, have been proactive, showing financial returns consistent with the “sole purpose test” which directs funds to invest only for the retirement benefit of members.
The task force, set up in the 2019 federal budget to investigate the role the commonwealth should play in developing investment to “provide solutions to address entrenched disadvantage and some of society’s most intractable social problems” released an interim report last December. It identified three existing segments — social impact bonds which provide start-up funds for potential future return; the approximately 20,000 social enterprises of small to medium size with less than $10m turnover; and large scale enterprises of which only about six have an annual turnover of more than $50m. The interim report flagged the need for an early stage foundation; a body to promote more “outcome-based” funding opportunities; and a wholesale fund similar to Big Society Capital in Britain. The latter, it said, was “critical” for growing the sector.
Big Society Capital, was set up in 2012 as a £400m ($727m) fund to support and co-invest with fund managers to invest in social enterprises. It has since signed £540m of investment and attracted more than £1.2bn of coinvestments.
In an interview with The Deal, Traill emphasises that if the market is to scale up, Australia will need impact investment “wholesalers” to operate as intermediaries in the same way as fund managers operate in investment generally. Such a body would also attract people who could “talk a tripartite language” of business, social performance and community, and government. “A lot of the impacting investing space — think social housing, think aged care, early learning, NDIS — has an element of understanding of government policy funding and engagement,” Traill says.
“It becomes a virtuous circle. If you can set up funds that have $40m to $50m in them rather than $5m to $10m, by definition it is easier to hire (top talent).”
The task force found that high net worth funders, foundations and super funds which are already investing in social projects are often hungry for more products. They were saying “we would like to do more, we’ve been quite happy with the financial returns, the visibility of social impact, but we’d like to actually do three to five times the amount of what we are doing”.
“The question is then, how you develop more products?” Traill says. “We think that the answer is to set up the kind of partnerships that support the sustained development of intermediaries ethical fund managers who can originate these opportunities and transactions.” But he says the fragmented market will need support across all three segments from the earliest stage seed funding to mid-sized social enterprises to larger scale projects. This is needed in order to build skills for the bigger projects.
Traill left investment bank Macquarie 20 years ago to become founding chief executive of Social Ventures Australia. Back then the focus was on “venture philanthropy” and the use of performance metrics to bring venture capital disciplines to philanthropy without demanding a return on investment. “What has happened over the 20 years since is a much more sophisticated understanding that there will be opportunities to mobilise even bigger chunks of capital where you can combine reasonable financial returns and social purpose,” says Traill.
At present impact investing totals about $1bn in Australia but Traill suggests it could grow to 2 per cent of the overall local investment market of about $3 trillion. “I don’t think that’s a naive or aspirational target... 2 per cent is still mobilising massive pools of money. It could be a $60bn market. But to get to that point you would want it to be recognised as a mainstream asset class in the same way as private equity or infrastructure or direct property.”
Traill says super funds are interested in investments of $20m to $50m and above. That means they need projects of between $50m to $100m and above. “That is actually a big chunk of the market when you think about aged care, you think about TAFE and further education, early learning childcare, social and affordable housing,” he says. “The NDIS housing (for example) has been effective in encouraging funding into that market. These are clearly multibillion-dollar chunks of the economy.
“Wind the clock forward five or 10 years and I think there will be a very broad church of impact investors. The super funds have to provide reasonable long-dated financial returns and I think there is a transaction opportunity there that will appeal to them. “I think that will be a big market and then you’ll have a spectrum of impact investment that draws on the original pool of foundations, philanthropists and investors who want to generate a return but may be prepared to accept a ‘below conventional risk return’. And that’s already happening.”
The British system was boosted by using “unclaimed monies” and Sir Ronald Cohen, the force behind its establishment, has suggested Australia make similar use of so-called passive funds. But Traill says there are legislative and technical problems in “liberating” these funds in Australia, and the task force has not recommended that idea. Nor is it pushing legislative change to help Australia scale up the sector.
“We think it is much more about government encouragement and enabling,” says Traill. He says the final report addresses two other issues that have held back development of the sector — the need for capacity building for early stage social entrepreneurs who need resources; and “a very specific gap which we came to know as the valley of debt funding”. This refers to the problems faced by a social enterprise which is up and running but is too small to access the next tranche of capital — often between $25,000 to $150,000 — to allow it to grow to the next level.
Full article via The Australian
HELEN TRINCA, THE DEAL EDITOR AND ASSOCIATE EDITOR Helen Trinca is a highly experienced reporter, commentator and editor with a special interest in workplace and broad cultural issues.
29 October 2024 - For Purpose Investment Partners (FPIP) has released its Impact Report 2024. A leading social impact investment fund manager, FPIP voluntarily reports information about its approach to impact measurement and the performance of portfolio companies and projects. With a commitment to deliver financial value and social impact without compromise, FPIP are pursuing a broader ambition to establish social impact investments as a viable asset class for large-scale transactions across the Australian market.
Michael Traill, Executive Director said “Publishing transparent and accountable information in our Impact Report 2024 is a demonstration of our thought leadership in impact investing. We believe transparent reporting is a factor in building the understanding and assurance amongst investors to unlock significant amounts of capital that can transform the social sector.”
Mr Traill, who chaired the Federal Government’s Social Impact Investing TaskForce, further explains, “Ultimately, we need to get to scale to tackle the sector-wide transformation that is needed in areas including aged care, disability, education and housing. Institutional investors need to know that impact fund managers are transparent, accountable and creating value. Proofpoints like our annual Impact Report, are part of the assurance that investors require.”
Additionally, FPIP were one of the first Australian signatories to the Operating Principles for Impact Management (OPIM) and were independently assessed by BlueMark against these principles.
Ben Smith, Head of Impact Investing at the Paul Ramsay Foundation says "As early backers of FPIP, we are pleased to see the organisation's progress and second impact report publication. FPIP's inclusion of third-party assurance creates the comfort that impact investors seek. We know from global practice that transparency and impact integrity are key ingredients to establish confidence and progress markets."
Mr Traill continues “Our values and commitment to transparency led us to seek external verification that provides investors with confidence that we have been benchmarked and tested to a global standard.”
“We are focused on continuous improvement and this was evidenced by a lift in ratings across three of the eight principles this year. As a team we will continue to work in close partnership with our investees to increase our collective impact. We are demonstrating Australian impact to a global standard.”
The Impact Report 2024 is available here.
ENDS
Michael Traill, Executive Director and co-founder of For Purpose Investment Partners is interviewed on the latest With Purpose podcast by David Knowles. The episode overview is 'Michael Traill AM made his name at Macquarie Bank as a successful private equity investor, before jumping ship to foster social entrepreneurship in Australia as founder of Social Ventures Australia. This journey led him to the field of impact investing, a field in which he is now acknowledged as a pioneering leader and elder statesman. Today, Michael is Executive Director of For Purpose Investment Partners and Chair of the Paul Ramsay Foundation. In this episode, Michael reflects on what he has learnt during his career, and shares unique insights in relation to investing, leading, governing and tackling a wide variety of social issues.’
NAB, CBA and Bank Australia provide $260m joint debt facility
Deal highlights
· $260m facility will support the acquisition of Signature Care
· Signature Care has eight operational residential aged care facilities, and a growth pipeline of six development sites
· The transaction includes $35m of social loan notes provided by Qantas Super and Australian Ethical Investment.
7 August 2024 - NAB, CBA and Bank Australia are backing For Purpose Investment Partners (For Purpose), Australia’s pioneering impact investment manager, with over $260m of debt facilities. The facility will support the For Purpose Aged Care Australia (FPACA) platform for the acquisition of Signature Care.
FPACA is a not-for-profit aged care platform focused on achieving excellent health and wellbeing outcomes for residents and attracting and retaining quality staff. The platform brings together Luson Aged Care and Signature Care and will have over 2500 beds creating a top 15 Australian aged care provider. The support of NAB, CBA and Bank Australia follows the landmark commitment of institutional investors Qantas Super and Australian Ethical Investment, announced in April 2024.
Announcing the commitment Michael Traill, Executive Director of For Purpose said “We are delighted to partner with NAB, CBA and Bank Australia to support the expansion of our aged care platform. This further expands our existing relationships with NAB and CBA and we are excited about our first partnership with Bank Australia. With this debt facility the banks are demonstrating their leadership in financing social impact in Australia while supporting better outcomes for thousands of Australians in aged care.
“The inclusion of $35m in social loan notes is a further endorsement of the strength of the FPACA platform to deliver institutional grade long term financial returns and social impact.”
Toby Hall, Chair of FPACA said “We have an ambition of transforming the aged care sector to have a broader social impact that starts with person-centred care and a valued workforce. The support of the banks, preceded by that of institutional investment, demonstrates the value of aged care and the role it plays for Australians and their families.”
John McCarthy, Head of Corporate Health, NAB said “NAB is delighted to be partnering with FPACA as they continue to support the aged care sector and bring critical social infrastructure to regional locations. As a banker to the seniors living sector for over 10 years, I know how important the investment in quality aged care is to communities. I’m proud that the NAB Corporate Health team has played a role in enabling such an investment and look forward to seeing it come to life.”
General Manager, Major Client Group CBA Craig McQuillen said “We are proud to support For Purpose in their ambition to transform the aged care sector and create positive social impact. The deal features a unique social loan note structure which aligns investors to long-term returns and is the largest transaction of this nature in our Business Bank to date.”
Bank Australia Head of Impact Lending Tim Von Ess said ‘‘Through Bank Australia’s impact lending we aim to meet our customers’ expectations that their money is used to generate positive social and environmental impact. We’re pleased to be involved in FPACA’s acquisition of Signature Care and helping to increase in the supply of high-quality aged care accommodation and care for older Australians.’’
The commitment supports the previously announced strategic acquisition of Signature Care by FPACA. With eight operating aged care facilities, the potential growth pipeline includes six development sites across Australia with a focus on regional centres.
ENDS
For Purpose Investment Partners acknowledges and pays respect to the past, present and future Traditional Custodians and Elders of this nation and the continuation of cultural, spiritual and educational practices of Aboriginal and Torres Strait Islander people.
We believe that diversity, equity and inclusion at For Purpose Investment Partners are critical in our efforts to create significant social impact. Diversity in the team allows us to better represent the diversity of thought and experiences of the communities that we are aiming to serve, promotes a healthy and thriving working environment, and delivers innovative and sustainable outcomes for our communities, our people, our investors and our partners.
