Impact investing has become a popular way to finance projects that have an environmental, social, or economic impact in communities., Investors have seen their investments truly impact on job creation, improved infrastructure, and increased access to resources. However, just like any other type of investment, there are challenges associated with impact investing across the Americas. In this blog post we will explore some of these challenges and how they can be addressed.

Political Risk

Political risk is one of the major challenges for impact investors in the Americas. Political instability or uncertainty in certain countries can create a situation where the returns on investments may not be as expected or may not even be realized at all. Political risk can also hinder companies from operating at full capacity due to restrictive policies or lack of clarity on regulations. This can result in losses for investors and reduced returns on their investments. To mitigate political risk, it is important for investors to thoroughly research the political landscape before making an investment decision.

Lack of Access to Capital

Another challenge for impact investors across the Americas is lack of access to capital. Many companies working in underserved markets do not have access to traditional sources of capital such as banks or venture capitalists due to their location or size. Therefore LP’s in collaboration with their partners in AM are in a unique position to provide funds for growth and development through direct investment of capitol

Lack of Awareness

In 2018 and 2019 the global impact investing market continued to grow, now estimated at approximately USD $715 billion. The Latin American market reflects similar trends, though it faces unique challenges and opportunities, and there is relatively little data available to characterize the specific nature of investors and deals in the region.

Finally, another challenge facing impact investors across the Americas is lack of awareness about social and environmental issues among potential customers/clients/investors who could benefit from such investments. Many people are unaware about how investing in certain sectors can help communities grow economically by creating jobs and providing essential services that are otherwise inaccessible due to limited resources available locally. As such, it is important for investors across the region to raise awareness about social and environmental issues by engaging with local stakeholders through education campaigns and workshops that highlight potential opportunities provided by investment initiatives targeting those areas most affected by poverty and inequality.

Prospects for the Future:

The most common challenges cited by respondents detailed in a report by the Aspen Network of Development Entrepreneurs were macroeconomic conditions (64%) and availability of capital (49%), not surprising given the economic fallout of the COVID-19 pandemic. Currency risk also seems to be increasing as an issue, with roughly one-third of respondents (29%) citing it as a primary challenge—up from only 6% in 2018.

Forty-five of respondents within this report shared their perspective specifically on the pandemic and its impact on the sector. Their greatest concern is the deterioration of and uncertainty in macroeconomic conditions, making it difficult to fundraise. There is reason to think the sector is stepping up: according to the GIIN’s recent survey of 81 impact investors’ response to the COVID-19 pandemic, 41% are planning to target Latin America and the Caribbean when deploying capital to respond to the crisis.

McKinsey’s report reviewing North American asset management in the 2020s states that the past 18 months have planted multiple seeds of disruption which are setting a dynamic new horizon of growth for the industry in the coming decade. Post COVID, the asset management industry in North America was a beneficiary of the rapid bounce-back, with sheer growth in assets under management (AUM), 2020 was the second-best year since the financial crisis, and the global industry reached an all-time high of $115 trillion.

In North America, AUM rose 13 percent in 2020, including net new flows of 2.3 percent (well above the average of the five years prior). Organic growth was broad-based, with five of seven major client categories showing positive net flows. Industry profits reached a new record of close to $73 billion (exhibit), despite an acceleration in the mix-shift to lower fee asset classes and vehicles in 2020. Compared with five years ago, the difference in growth and profitability between the best and the rest has grown.

Conclusion:

The challenges faced by impact investors across the Americas are multifaceted but they can be addressed if approached strategically with long-term solutions in mind. By researching the political landscape prior engaging in any sort of investment activity, providing access to capital through direct means or intermediaries, and raising awareness among local stakeholders about social and environmental issues via educational campaigns; impact investing will become more accessible across all regions within America’s continent - thus resulting greater economic growth opportunities within underserved markets worldwide!