Impact investment funds providing healthy returns

More evidence comes to light that suggests impact investing is not only for those looking to do some good. It's starting to look pretty attractive to those with their eyes on the bottom line too.

Impact investing is holding its own against funds only concerned with financial returns, according to a new report.

The report, Introducing the Impact Investing Benchmark, found that market rate returns of 6.9% are attainable in impact investing. This compares favourably with the figure of 8.1% for the "comparative universe".

The Global Impact Investing Network (GIIN) got together with Cambridge Associates – which provides independent financial advice to institutional investors – to produce a report that looked at the financial returns that impact investment funds are delivering. Although GIIN offers a choice of metrics regarding impact measurement through it's IRIS arm, this report only considered the money that could be made through private equity and venture capital funds.

“There’s a view among some investors that impact investing necessarily entails a sacrifice in financial return. However, this data helps to show that is more perception than reality. This Impact Investing Benchmark has exhibited market rate returns – and stronger performance in a number of vintage years, sizes and geographies of focus,” said Cambridge Associates managing director Jessica Matthews, who heads the firm’s Mission-Related Investing Group.

Given that funds on average take between seven and 10 years before they provide a return, the report looked at 51 funds launched in the years 1998 to 2004. Impact investing funds tend to be smaller than purely profit focussed funds, with half of the 51 funds raising less than US$50m. In the comparative universe, three quarters of funds are above the US$100m mark.

Interestingly, impact investment funds remained robust in the face of global downturns at the beginning of the century and in 2008. The report concluded that this was due to the rapid growth in the number of funds raised during that period. The impact investing industry was described in the report as “young and dynamic”, given it’s relative infancy and rate of growth compared to the traditional private investment industry.

The funds in the sample were addressing social problems such as financial inclusion, employment, economic development and sustainable living. Emerging markets funds performed best, giving returns of 9.1%, with those focused on Africa even higher at 9.7%. Investors in all the funds considered were primarily from Europe and North America.

GIIN, who are funded by the Rockefeller Foundation, are dedicated to increasing the scale and effectiveness of impact investing. The report will be updated quarterly and funds that are yet to mature will be included in the future.

Whilst noting that the data will become increasingly robust as the sample size grows, it’s likely that this first report will prove encouraging to potential investors whose prime focus is the bottom line. Amit Bouri, CEO of the GIIN certainly thinks so: “This demonstrates that market rates of return are achievable through impact investing. We hope this will strengthen the credibility of impact investing for a broader set of investors.”


Photo credit: Ervins Strauhmanis