In mid-2023 PRF further committed to impact investing and allocated 10% of the available endowment1 to ‘Mission Related Investments’. These investments seek to deliver risk-adjusted returns alongside measurable positive impact. This followed PRF’s experimentation with impact investing dating back to 2020 and a strategy that established our work in this area in 2022.
The thesis for our allocation (the ‘Mission Related Allocation’) follows that of peer foundations, in particular international peers: proving that it is possible to generate financial returns and impact. Importantly the financial returns we seek from the Allocation are consistent with the remaining Endowment Investment Portfolio: CPI + 3.5% per annum over a rolling 7-year period. Noting the evolutionary nature of the Australian market, and the well-publicised need for ‘risk tolerant’ capital, we went further by setting a series of priority areas to underpin the Allocation’s investment strategy:
- Invest in emerging impact funds and / or emerging impact managers;
- Build positions in impact funds that are showing strong performance; and
- ‘Graduate’ strong performing funds to the ‘main’ Investment Portfolio once they have demonstrated the required track record.
Underpinning our investment strategy is a desire to: invest in high quality impact managers; build a diversified portfolio that evidences strong impact and financial returns; and use this important evidence base to influence the behaviour of other foundations and institutional investors so that more capital can be allocated to impact.
We have inevitably encountered scepticism, notably around an expectation that financial returns would have to be sacrificed for impact returns. This scepticism is healthy and has led to several debates about whether it’s the ‘impact’ element of our strategy that may result in lower returns or the level of ‘emerging manager’ risk that may – present irrespective of investing with impact. We aim to demonstrate that neither is the case, and appropriate returns can be delivered alongside impact and supporting emerging fund managers.
Since our announcement in 2023, our Mission Related Allocation has generated measurable impact returns across all our areas of investment including social and affordable housing, Specialist Disability Accommodation (SDA), aged care, employment and climate. As of 2024 the Allocation’s investments have collectively:
- financed 260 social and affordable homes, housing 400 people;
- built over 200 SDA homes;
- provided 305 aged care beds;
- produced over 36,000 texture modified meals to Australians living with a disability;
- supported over 1,500 learners with nearly 400 of those gaining employment;
- provided three of the biggest private water donations in Australian history with over 13,000 GL of donated water to environmental water organisations;
- treated over 205,000 tonnes of organic waste; and
- generated over 89,000 MWh of renewable energy, equivalent to avoiding 377,400 metric tonnes of CO2 emissions.
…the impact return is being ticked.
Many question whether there is a large enough pipeline of quality impact deals. This isn’t a challenge we’ve encountered, in fact completely to the contrary. As of September 2024, we had made more than $120m commitments with our barrier being internal capacity (available funds) rather than quality demand. These levels of commitments mean that we have already exceeded our 10% mandate (now standing at 13.5%). We have a strong near-term pipeline of four exceptional opportunities that are in the final stages of due diligence. By the end of the year, we may conceivably be at $150m of Mission Related Investment commitments.
Crucially, our Mission Related Allocation has seen strong financial returns. Across the last year financial returns stand at 9.23% net, over 2 years at 7.93% net, 3 years at 7.33% net and 6.26% net since inception2; the Allocation has outperformed the benchmark and, at times, outperformed the ‘main’ Investment Portfolio. Gains have been made in each of the last nine consecutive quarters and the Allocation’s value has appreciated by 10.41% from cost value.
What this data suggests is that (a) impact managers can generate good financial returns; and (b) taking emerging manager risk is justified because although we may experience an initial ‘j curve’, as funds reach semi/stabilised positions, performance is present.
While we are delighted by the progress and performance to date, we know that it is too early to draw conclusions. At less than three years of meaningful data and within a portfolio that is designed to be long-term we know we need to be patient and accept that there will be inevitable bumps along the road. It’s also worth noting that, as is common with impact investments, the Allocation is relatively illiquid. We are also incredibly fortunate to have the benefit of a strong, interdisciplinary in-house team that also oversees our Impact-First Evergreen Program Related Investment Fund and grant making, and a supportive Investment Committee.
Looking ahead we plan to continue to broaden our work in impact, sustainable and responsible investing through our commitment to our Total Impact Approach. The evolution of our ‘main’ Investment Portfolio, for example, continues thanks to our partnership with our investment advisors.
Secondly, we want to continue to build a diverse portfolio that balances risk, return and (critically) liquidity (requiring impact as a given). Our initial focus on housing has expanded to other impact areas, geographies and asset classes. Our pipeline is strong and diverse and we are intentional towards our ambition to establish a ‘model portfolio’.
Finally, we want to encourage more asset owners to commit capital to impact. Although we are relatively new in the global market, our results are inspiring us to double-down on our work. Our underpinning invest, build, influence philosophy is based on our desire to continue to learn - and share - with others so that more may be motivated to reach out, collaborate, and invest.
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- The available endowment excludes Ramsay Healthcare shares which both established PRF and remains the largest element of the endowment
- The Allocation’s first investment was made in April 2020
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