Impact investors are getting more sophisticated and efficient as they make performance and capital allocation decisions, according to a report released Thursday by the Global Impact Investing Network.
The GIIN report, Impact Investing Decision-Making: Insights on Financial Performance, found that financial performance varies significantly based on asset class and investment objectives, and that risk-adjusted market-rate returns are achievable contingent on manager selection and investment strategy.
The report confirms earlier findings on the financial performance of private debt, private equity and real assets, the most common asset classes for impact investments. Impact debt funds are particularly important for risk mitigation and diversification, the report said. Responses from 161 impact investors to the GIIN's 2020 Annual Impact Investor Survey are also included in the report.
The report includes case studies on how various facets influence decisions made by six leading impact investors — Anthos Fund & Asset Management, IDP Foundation Inc., Incofin Investment Management, UBS Global Wealth Management, UBS Optimus Foundation and Vox Capital — on capital allocation and performance to achieve risk-adjusted, market-rate returns.
"To understand what success looks like, impact investors are looking at how they can most efficiently achieve the best impact and financial performance — the most optimal performance point — for the least amount of capital deployed," Dean Hand, GIIN director of research, said in a statement.
"Experienced impact investors exercise a multidimensional approach to decision-making, considering impact objectives and impact risk, alongside traditional factors such as financial returns, financial risk, liquidity constraints and resource capacity, to drive impact and financial performance," he said.