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What building capacity means for family office impact investors

Sharing the lessons learned is one of the recommendations in a new report on technical assistance in the impact investment industry.

Sharing the lessons learned is one of the recommendations in a new report on technical assistance in the impact investment industry.

Beyond Investment: The Power of Capacity-Building Support was launched by the Global Impact Investing Network (GIIN) this month and highlights “common, effective practices and opportunities to enhance future practices”.

Capacity-building was described by the New York-based, non-profit organisation as a versatile, widely-applicable tool which offers multiple direct benefits to investors and investees. The structure and delivery of capacity-building support was often customised to meet the needs of recipients.

Practitioners from 31 organisations were consulted by GIIN researchers, who found a majority of impact investors provided capacity-building support to investees but the role had not been adequately explored.

A total of 73% of impact investors, service providers, and funders chose to provide capacity-building support, according to Beyond Investment. They were motivated to make the provision to improve an investor’s level of competitiveness for impact investment transactions, enhance financial performance, and improve or expand the investees’ impact.

The report urged investors to share their experiences with peers to accelerate the growth of the market.

Abhilash Mudaliar (pictured), GIIN research director, said capacity-building support was one critical tool to accelerate and deepen the change investors sought.

“Through capacity-building support, investors, service providers, and funders can strengthen the impact of impact investing, grow vibrant markets with thriving communities, conserve and enhance our environment, and improve the lives of the people who need it most.”

Why should ultra-wealthy family business leaders and next gens take interest in capacity building in the impact investing industry?
Mudaliar: Impact investors look at providing capacity-building support for four main reasons. One is to make themselves more competitive as investors: 70% of investors in our report noted they face some or a lot of competition for deals. Capacity building is one way to differentiate themselves and also improve the investment readiness of potential investees.
There are also big financial reasons to look at capacity building. Most investors perceive some financial benefit from the practice, including revenue generation, operational improvements, risk reduction and long-term strategic planning.
Just as important as the financial side of things though, is the impact. Capacity building can boost this too, improving or expanding the investee's social and/or environmental impact.
Finally, capacity building also has a role to play in the broader market—some investors offer capacity building support to companies outside their portfolios in order to create better business environments where they invest.
What messages are there in your report for those interested in impact investing, those already impact investing and those trusted advisers who counsel for or against impact investing to ultra-wealthy family business principals?
Mudaliar: Capacity building support isn't unique to impact investing—it's common practice in the PE/VC worlds too. However, it is a key component of impact investing, capable of differentiating the investor and boosting both financial and impact performance of the investee. Any impact investor or adviser looking at impact investing on behalf of a client should consider whether there is an option to contribute to capacity building in addition to investing in a fund.
For those looking at capacity building, our report had three main takeaways. Firstly, capacity building is a versatile, widely-applicable tool offering direct benefits to both investors and investees. Secondly, there's no single way to structure and deliver the support—it can take many forms. Finally, impact investors experienced in providing capacity building support tend to be the ones most satisfied with their results; there's benefit and opportunity to sharing lessons openly with others.

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