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Southeast Asia: the next frontier for impact investors

Southeast Asia: the next frontier for impact investors

Southeast Asia is one of the fastest growing regions for the impact investment industry, with a 32% annual growth in capital deployed to the region by global investors.

An annual survey by Global Impact Investing Network (GIIN) covering 229 respondents with $228 billion in impact investing assets under management (AUM) found that more investors were planning to increase allocations to Southeast Asia than to any other region in 2018.

Forty-four percent of the survey participants said they would increase their allocations to Southeast Asia this year, which was higher than that of any other region.

Moreover, among a sub-set of five-year repeat respondents, the survey found that the fastest growth in allocations were reported in Oceania, with a compound annual growth rate (CAGR) of 45%, and East and Southeast Asia with a CAGR of 28%.

The history of impact investing has been dominated by efforts in North America and Western Europe, with limited opportunities and vehicles in Asia. In fact, GIIN estimated that only 6% of global AUM is currently invested in Southeast Asia.

However, there has been considerable increase in capital deployment by private impact investors over the past 10 years, which grew from a mere $10 million in 2007 to $160 million in 2017.

As a result, approximately $904 million has been deployed over 225 impact investing transactions in the past decade by private investors, including fund managers, family offices and foundations.

Development finance institutions such as the International Finance Corporation and Asian Development Bank, meanwhile, have deployed $11.3 billion in Southeast Asia over the past 10 years.

The growth in private interest has been driven by wealthy families in the region looking to diversify their portfolios, Abhilash Mudaliar, director of research at GIIN said at a press briefing held in Singapore.

‘Given that many markets in the region are seen as being welcoming to foreign capital relative to other emerging markets there's good ease of doing business in the region,’ he added.

The average deal size for private investors in the region is $3.9 million, according to GIIN, which has partnered with Credit Suisse for releasing the Asia findings.

Top countries for impact investing in Southeast Asia included Indonesia, Vietnam, Philippines and Cambodia, while the top sectors were financial services, energy and manufacturing. Education, healthcare and information communication and technology are being viewed as emerging sectors.

Mudaliar noted that capital flows from North America and Europe continued to dominate investments into Southeast Asia.

However, Bernard Fung, Asia-Pacific head of wealth planning services for Credit Suisse is seeing tangible growth in interest for impact investing from clients in Asia, who prefer investing through private equity, private debt and venture capital funds.

In fact, approximately 30 Asian ultra-high net worth families have invested in the $55 million impact fund launched by Credit Suisse and UOB Venture Management in 2017.

So far, the fund has invested in six companies across Indonesia, China and the Indochina region, excluding Thailand, with the aim to improve access to agriculture, markets and inputs, commerce, finance and housing.

The second tranche will be soft-launched in 2019 and Fung is positive that it will continue to draw support from the region.

Moreover, his clients have also had the chance to invest in two Higher Education notes launched globally by Credit Suisse in partnership with Prodigy Finance. Both vehicles are bond-like instruments that aim to improve access to education through global investments, including in Asia.

‘Impact investing is the ground on which the new generation and the old generation talk to each other,’ Fung concluded.

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