According to David Fann, president and CEO of alternative assets consulting group TorreyCove Capital Partners LLC, the proliferation of impact investments in the private equity industry is set to soar as firms large and small follow the lead of giants such as KKR & Co. LP, Blackstone Group LP and Apollo Global Management.

“We are in the early innings of the impact investing movement,” Fann said. “More European funds have embraced it, especially its environmental aspects. Most larger U.S. investment firms are beginning to integrate elements of impact investing and in many cases, have undertaken some aspect without realizing it.”

“Usually, when the large PE firms begin talking about it, most of the industry follows,” he added.

The practice has seen significant growth in recent years, as evidenced by the fifth annual impact investor survey, which was released in May 2015 and conducted by The Global Impact Investing Network and JPMorgan. According to the survey, the 146 respondents planned to increase their commitments in 2015 by 16 percent, with an aim of plugging $12.2 billion into impact investments, up from $10.6 billion in 2014.

The intended increase in impact investing is also evidenced by the publicly stated policies of some of the larger private equity firms, such as KKR, which notes on its website that responsible investments are more than just the right thing to do.

“It is also essential for smart investing,” the firm notes in a quote attributed to Henry R. Kravis and George R. Roberts, co-chairmen and co-CEOs of KKR. “Our commitment to creating sustainable value has never been stronger.”

The initial reaction from many may be that financial concessions are necessary to dive deep into the world of impact investing, but that hypothesis doesn’t totally pan out when you look at the data. The impact investment survey showed that 27 percent of respondents reported that their portfolio of impact investments outperformed their expectations, while only 2 percent reported an underperformance against their financial return expectations.

The reason impact investments can be just as beneficial to a firm’s bottom line as any other investment is that the capital injections have the dual purpose of being financially lucrative and beneficial to society, according to an article penned earlier this month by Susan Balloch, chief operating officer of the Global Impact Investing Network.

LEARN MORE ABOUT PRIVATE EQUITY AND OTHER INVESTORS IN IMPACT INVESTING AT THE AFRICA IMPACT INVESTING LEADERS FORUM: >> http://aiilf.com/

Balloch detailed in her article that the point of impact investing is to effect long-term change in whatever industry you are focused on, and the best way for private equity firms to do that is by plugging money into already profitable businesses that agree on the direction a given industry must go.

“That’s one of the reasons why private equity is so suited to the task,” she wrote. “The variety of industries private equity has supported over the past several decades is enormous. Private funds helped bring us the dawn of the Internet age as well as overhauled brick-and-mortar infrastructure. Private equity is designed to maximize value and manage with efficiency.”

As for where impact investments are generally directed, there’s no single area, as parts of many industries can be considered to be important for the greater good. Or, as Fann put it, “impact investing is literally all over the map,” meaning no matter the focus of your firm, industry-wise or geographically, there is opportunity to make a true impact with your investment.

“Some private equity investors focus on the inner city,” he said. “Others are focusing on sustainability themes including clean energy, food supply and pure water. Some groups have focused on education. There are some focused on disadvantaged segments of the workforce with diversity and inclusion objectives.”

Wherever the investment ends up, it’s important to actually care about the area in which you are trying to make an impact, according to Arthur Hidalgo, who founded Carpenter Community BancFund, a private equity firm that invests in local banks in underserved communities. If you are just trying to jump on the trend of impact investing but don’t sincerely have your heart in it, then you’re doing it wrong, he said.

An impact investor should pick a cause they truly care about and then determine what type of financial return would be considered a success, Hidalgo explained, because all the survey results and quotes on private equity giants’ websites can’t disguise the fact that private equity has traditionally sought returns that just aren’t easy for impact investments to replicate — at least at first.

Over the long term, however, it is possible for impact investments to be both financially lucrative and truly fulfilling for the soul, Hidalgo said, but only if the investor in question actually wants to make a difference in the world.

For instance, Hidalgo pointed to a Manhattan bank his firm has invested in that uses solar power to operate its buildings and has enabled the use of free public Wi-Fi in its surrounding area.

“What statement do you want to make?” he asked. “A more profit-motivated [person] is less likely to be an impact investor.”

– By Benjamin Horney

Editing by Christine Chun and Catherine Sum.

In the context of a global search for returns, investors eager to obtain exposure to frontier markets in Africa – one of the world’s fastest-growing consumer markets – are increasingly exploring the sub-Saharan African private equity market.

Erika van der Merwe, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), says that, as private equity is still under-represented in sub-Saharan Africa, the asset class presents an opportunity for investors to invest in a region that is experiencing strong economic growth and which is generating robust returns.

According to the Search for Returns survey, 80 percent of the investors expect African private equity to outperform African listed equity over the coming decade.

Van der Merwe adds that the South African private equity industry in particular has delivered healthy returns for investors. She believes that the industry, which has a thirty-year track record of deal-making, exits and fundraising, and which now has an expanding regional reach, is set to play an important role in the continued growth of the asset class in other African markets.

The latest RisCura-SAVCA South African Private Equity Performance Report shows that, by mid-year 2015, the South African private equity industry delivered a ten-year internal rate of return (IRR) of 21.7 percent, up from 20.5 percent in March 2015. This performance compares with the 17.1 percent return from the FTSE/JSE All Share Total Return Index (ALSI) over the equivalent 10-year period.

Van der Merwe says that the South African private equity industry, representing more than R170 billion in assets under management, gradually is maturing. “This is demonstrated by the emergence of specialist funds, dedicated to focused sectors, as well as by the trend towards the establishment of funds with a multi-country focus, with many new South African-managed funds now having a mandate to invest outside South Africa. Both of these factors are characteristics of a more developed industry.”

She adds that South Africa also has a proven track record in exits, and has demonstrated to investors that there are a range of viable exit options in this market; and thus a way to realise returns. “With this track record, and the ability to attract funds from institutional investors from across the globe, the industry is becoming a notable role-player in drawing capital into the broader sub-Saharan Africa region. South African private equity fund managers are deploying capital for deals in Southern, West and East Africa, for instance, and moreover are providing the strategic, financial and operational support to their South African-based portfolio companies to expand into new African jurisdictions.”

She says that private equity will play an increasingly active role in funding infrastructure on the continent. “By partnering in capital-rich projects ranging from power plants, renewable energy and water infrastructure, private equity is helping to boost productive capacity and economic potential.  Further, on a continent where capital markets are still in the early stages of development, private equity is an important source of capital and of strategic guidance to small, medium-sized as well as large businesses, across industry sectors.”

Van der Merwe adds that the further development of African private equity will benefit African economies and businesses from a governance perspective. “The SAVCA-DBSA Economic Impact Study (2014) – a survey conducted amongst companies into which private equity funds are invested – revealed that private equity drives good corporate governance (70 percent of respondents indicated that this was a key value-add from their private equity partners) and is valued for its strategic guidance (62 percent of respondents). The survey also revealed that businesses reported notable employment gains during the private equity partnership (on average, up 40 percent),” concludes van der Merwe.

By Emily Jarvis