Trusts, foundations deploy $100m in catalytic capital: Report

A new report reveals Australian trusts and foundations have deployed $100 million into higher-risk, impact-focused investments over the past three years, signalling promising demand for catalytic capital despite the market remaining in its early stages.

The Unlocking catalytic capital in Australia report, released in conjunction with consulting firm GoodWolf Partners and the Paul Ramsay Foundation, found while a small group of philanthropic organisations has driven most of the catalytic investment so far, momentum and opportunity for growth are rapidly building and deployment of catalytic capital will help unlock wider activity in impact investing.

The local trusts and foundations endowment pool is estimated to be more than $50 billion with about 60 members, according to the report. The Foundations Group for Impact Investing (FGII) represents 30% of this total pool of capital.

Catalytic capital refers to debt, equity, guarantees and other investments that accept disproportionate risk and/or concessionary returns relative to conventional investment to generate positive social and environmental impact and enable third-party investment that would not otherwise be possible.

Catalytic capital is typically used by impact-driven organisations, projects and intermediaries. These include charities, social enterprises, First Nations organisations, community-led initiatives, impact funds, or other models with the primacy of social or environmental objectives.

"A single foundation accounts for the majority of the $100 million figure. This concentration is itself a finding: the Australian catalytic capital market among philanthropic investors is nascent, with a handful of pioneering organisations carrying most of the weight - and significant untapped potential across the broader FGII membership," the report read.

Among survey respondents, 75% said they intend to increase their use of catalytic capital over the next three years, with each expecting to deploy between $5 million and $20 million by 2029.

Nearly all respondents (95%) said helping establish a track record for emerging investments was the primary role of catalytic capital, reflecting its ability to de-risk early-stage opportunities and crowd in conventional investors. Leveraging additional investment and supporting innovation were also identified as key objectives.

"The opportunity now is to move from isolated examples to a more concerted market-building effort will require clearer language, better data, greater intermediary capability and capacity, and more confident investors and investment committees. There is also an opportunity for active government leadership and market shaping through policy settings, risk-sharing, capacity building and infrastructure," lead authors Nina Yousefpour and Loretta Bolotin said.

"It's important to note that this research has only counted capital from philanthropic trusts and foundations. Catalytic capital deployed by government, institutional and corporate actors sits outside this estimate, so the true opportunity is considerably larger."