Influence of public policy on private equity impact investing

Abstract

Commercial capital markets have started to recognise that the context of investment must be considered, this is seen via the widespread adoption of the United Nation’s Principals for Responsible Investment. Impact Investing, has developed into a recognised mechanism for achieving a triple bottom line returns (financial returns, social returns, and environmental returns). Governments are recognising the benefits of this capital resource, by structuring policy to attract capital towards achieving impact. Private equity impact investing is a new alternative asset class that is regarded as a highly efficient instrument for allocating capital whilst achieving impact. This paper investigates the factors that are influencing Private Equity Impact Investing in South Africa, and it provides an exploratory investigation into the landscape of public policy that affects this asset class. This research is relevant through identifying trends and best practice for Private Equity Impact Investing in emerging markets, and evaluating their suitability for adoption in South Africa. This study was a qualitative study using data collected via 16 semi-structured interviews. These interviews included 8 private equity fund managers, 4 investment intermediaries, and 4 policy makers. The data was processed with the use of a computer-assisted qualitative data analysis software. Thematic coded analysis was performed on the data, and relationships were defined in accordance with the categorisation of themes. Findings were triangulated to ensure validity. The research found that whilst Broad Based Black Economic Empowerment provided an opportunity for targeted investment, it has the potential for expansion to incorporate additional impact areas. The poor implementation of policy by government agencies is resulting in failure to effectively feed soft capital into the investment spectrum, thereby creating a gap in the capital continuum. This has resulted in a shortfall in investment in SME and VC, thereby inhibiting the pipeline for Private Equity Impact Investment