Super funds not limited on “impact investments”

Superannuation funds are not as limited as they believe in their ability to make so-called "impact investments", according to new research from the University of Sydney Business School.

Further, the research suggests that a greater understanding of such investments could see them grow to be worth $32 billion in 10 years.

The research, released this week, describes "impact investments" as those that "seek positive social and environmental outcomes along with financial returns".

The research report, ‘Impact Investments: Perspectives for Superannuation Funds', has found that Australian capital invested in impact investments in 2012 stood at around $ 2 billion.

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Further, it claimed at the current rate of growth that total might reach $32 billion in 10 years and even higher if superannuation funds were to put aside the "misconception that these investments must involve financial ‘trade-offs' in order to achieve their social and environmental goals".

Regulations governing the superannuation industry require that fund managers must adopt investment strategies that have regard to risk, return, cashflow, diversification, liquidity, valuation data, tax, costs and liabilities of the investment.

The report said institutional investors, such as super funds, had long seen a conflict between their legal obligations to their members and the "soft" and "non-financial" goals of impact investment products.

However it said that, increasingly, impact investment opportunities were being packaged in forms that are familiar to super funds, are offering market rates of return and have governance and reporting practices similar to those of more traditional investment targets.

"There is no restriction on super funds making impact investments so long as they proceed with care," according to the lead author of the research, Kylie Charlton, who is also co-founder and managing director of Unitus Capital.

"Super funds must apply the same professional processes and techniques for due diligence for impact investments as they use for any other investments."