Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
return of over 14% in emerging markets. Additional five- and 10-year VC returns
data are shown in Table 28 in Appendix V.
We also note that the average realized returns of the investment management
community almost always lag the expected, forecast or projected returns when the
investment is being made. We have no reason to suppose that the impact investing
community will be any different. Our own anecdotal experience and interviews with
fund of fund and alternative investment managers suggest that mainstream PE/VC
managers in both the developed and emerging markets target net returns in the range
of 15–20%, and gross returns of 20–25%.
Selected data show realized returns on debt broadly reflect the range of expectations
Most of the realized data we received pertain to debt investments. We caution that all
of this data was provided by two respondents. The data show that EM debt provides
higher yields than DM debt, as one would expect. The realized returns for EM debt
are in line with expected returns while the DM debt realizations appear to outperform
average expectations.
In our definition of what constitutes
an impact investment, we include
investments that serve or employ
the BoP+. In order to make this
particular research work tractable,
however, we have limited our
scope to the impact investment
opportunities within five sectors
serving the WRI-defined BoP.
The market opportunity for investment is vast
As noted in the introduction, our estimate of market size is only partial, yet still
produces compelling results. While the market of impact investments will serve the
BoP+, we have attempted only to size the BoP sub-segment in emerging markets and
only for selected sub-sectors where data and case studies were readily available. We
further narrow our focus to companies that provide products or services to BoP
customers (the right hand side of Figure 3), excluding, for example, impact
investments that might finance BoP suppliers or small enterprises. In each sector, we
determine the amount of invested capital that would be required to fund such
businesses, and the profit that could be made, over the next ten ten years,
summarized in Table 1. In aggregate, across five sub-sectors, we estimate a potential
over the next ten years of profit ranging from $183bn to $667bn and invested capital
ranging from $400bn to nearly $1 trillion.
Our methodology begins by looking at case studies in each of our covered sectors
that illustrate the use of innovative business models to address the BoP consumer
base. Each case study provides an estimate of the price of providing the goods or
services and we use data from the World Resources Institute to estimate the number
of BoP consumers to whom that price is affordable. From this we calculate the
potential revenues, and with an assumption on average operating margins in that
sector we can arrive at potential profits. We then make assumptions about the
required capital necessary to support a business of that size.
We recognize that in sizing each sector we make several assumptions, each of which
can and will be challenged. We hope, however, that the basic framework which
estimates the size of the impact investing market by looking at the potential for
affordable goods and services provided through innovative business models to BoP
customers can serve as a useful methodology for further research and more refined
estimates of the market size. We describe our market sizing framework and outcomes
further in Section 4. The potential BoP market opportunity.
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