The Performance Of Impact Investments

The Global Impact Investing Network has offered its own take on a much discussed question: do “impact investing” and its variants under various names – sustainable investing, socially conscious investing, ESG investing, etc. – work? And, if so, how well? It looks at this question in a very granular way, focusing especially on II through private equity and private debt. Given this focus it engages in a meta-study, or literature review.

The GIIN begins with the observation that private equity is the most commonly employed vehicle for impact investing. It is used by more than 75% of the impact investors.

The Performance of Impact Investments

A 2015 Study with CA

Two years ago, GIIN partnered with Cambridge Associates, an investment consultancy, to develop the PE impact investing benchmark to assist understanding in this area.After updates, the underlying dataset for the benchmark now includes 71 funds, all seeking market rates of return while targeting social impact objectives. More than a third of the funds in the same managed over $100 million in AUM.

Classified by vintage year, 8% of the funds began investing between 1998 and 2001, 32% between 2002 and 2007, 27% between 2008 and 2010, and the remaining 32% between 2011 and 2015. [Actually, those numbers add up to 99% — presumably there was some rounding involved.]

Classified geographically, 39% of aggregate fund capitalization focused on Africa, 37% on the U.S, 17% on a mix of emerging markets, and the rest on a mix of developed markets.

How did they do? That 2015 study made the following points:

Since inception the 71 funds have generated aggregate net returns of 5.8% on average, with 4.6% showing up as the median.

The fund level internal rate of return can vary a good deal. The top 5% of funds get 22.1% or higher and the bottom 5% lose 15.4% or more.

That range itself is “similar to what is seen in conventional investing and illustrates that fund manager selection is key to strong performance.”