Investing in a private strategy that pursues social impact objectives will not always mean investors lose out on returns, but it does depend on the size and geographic target of the fund, said new research by Cambridge Associates and the Global Impact Investing Network.
The study focused on the financial returns for private impact investment funds, covering private equity and venture capital funds, and developed an impact investing benchmark, which will provide performance data on a quarterly basis.
The study showed some impact investing funds launched from 1998 through 2004 performed in line or better than a comparative set of non-impact investing funds.
Impact investing funds launched from 1998 through 2001 generated a pooled net internal rate of return of 15.6%, vs. 5.5% for the comparative universe, which invests purely for financial returns. Funds launched from 2002 to 2004 returned a 7.6% pooled net IRR vs. 7.7% for the non-impact investing funds.
Funds launched in more recent periods trailed the comparative universe, although the study noted these funds’ returns remain largely unrealized. Impact investing funds launched from 2005 through 2007 returned 0.9% vs. 10% for the comparative universe; while those launched from 2008 through 2010 returned 10.3%, vs. 15.2% for the non-impact investing funds.
Fund size and geography also had an effect. For the full period 1998 to 2010, impact investing funds with less than $100 million returned 9.5% pooled net IRR. That compared with a non-impact investing funds universe return of 4.5% overall.
For the same period, funds with more than $100 million returned 6.2%, vs. 8.3% for the comparative universe.
Emerging markets impact investing funds raised between 1998 and 2004 generated a pooled net IRR of 15.5%, vs. 7.6% for that same period in the comparative universe.
“There’s a view among some investors that impact investing necessarily entails a sacrifice in financial return,” said Jessica Matthews, managing director and head of the mission-related investing group at Cambridge Associates, in a news release accompanying the study. “However, this data helps to show that is more perception that reality. This impact investing benchmark has exhibited market rate returns — and stronger performance in a number of vintage years, sizes and geographies of focus.”
Amit Bouri, CEO of the GIIN, added in the news release that the benchmark lays the groundwork to generate critical financial performance data for the impact investment industry.
Executives at Cambridge Associates and GIIN were not available to comment by press time.