SINGAPORE: Temasek Holdings believes that impact investing has reached an inflection point, with the COVID-19 pandemic highlighting deep social imbalances that have intensified the need for such forms of investments.
Such investments, made to generate positive, measurable social and environmental impact, as well as financial returns, grew to US$715 billion in 2019 from US$502 billion a year earlier, the Global Impact Investing Network estimated in a survey.
This month, Temasek, one of the world's largest state investors, announced a US$500 million allocation to Asia and Africa-focused Leapfrog Investments, in the single biggest commitment to an impact fund manager.
"Our ambition is to be a catalyst to accelerate the growth," Benoit Valentin, the firm's head of impact investing, told Reuters in an interview.
"I think that in five years from now, every single big private equity firm would have their own impact vehicle."
Leapfrog invests in financial services and healthcare in emerging markets. Two years ago, Temasek's philanthropic arm set up ABC World Asia, a private equity fund for such investments.
"We believe impact investing is at an inflection point," Valentin, who is based in London, added.
Temasek, which also plans to take a stake in Leapfrog, is in talks to commit money to other fund investors to boost its presence.
"We are in due diligence with two funds already," Valentin said, one focused on India while the other had a wider sweep. "We have others lined up for the following years."
Temasek is among a few large state investors making a big push in a category that has attracted buyout funds such as Blackstone, TPG and KKR.
Early entrants showed it was possible to generate "risk-adjusted PE-like returns, not necessarily 25 per cent and above, but mid-teens to 20s-plus type returns", said Valentin.
"We are not seeing this as a dilution of our overall return journey," said the 20-year investment veteran, referring to the internal rate of return, a measure of actual profits.
It is vital to set clear benchmarks rigorously chosen in order to sustain growth, he added. Temasek is working with a third party to audit its impact investments and Leapfrog and ABC also had third-party audits.
"Eventually, I do believe that there will be some sort of retail money flowing," Valentin said.