Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
3. Financial return expectations
Caveat
We do not present the analysis in
this chapter as representative of
the entire marketplace. The data
set is weighted toward North
American investors and reflects the
population of investors that
participated in the survey. While
the total number of transactions in
the database is significant (and
indeed much higher than we
anticipated given the private nature
of the market), the total number of
participants remains limited. All
conclusions presented below are
made simply based on this data
set, and any extrapolation to the
broader market should be made
with caution.
Impact investments span instrument types, sectors, and regions: from equity to debt,
microfinance to healthcare, Developed markets to Emerging markets. Given this
diversity, it is natural that there should be a wide range of expectations for the
financial performance of these assets. In some investors’ eyes, the coupling of the
intent to create positive social impact with the pursuit of financial return is reason to
expect lower returns from impact investments than from traditional investments.
Others believe that financial return need not be sacrificed when social impact is
being delivered and, due to the large underpenetrated market at the BoP, many
impact investments should outperform traditional investments. In this section, we
present some evidence on what impact investors expect of the financial performance
of their assets, what has actually been realized, and how these results compare to
traditional benchmarks.
Analyzing a sample of impact investments
As impact investments are predominantly debt or equity investments into private
companies, we collected the data presented below through a survey. The survey was
executed by The Global Impact Investing Network (“GIIN”), which collected and
ensured that all data was presented to J.P. Morgan with the names of respondents and
investments removed. Separately, the Calvert Foundation provided a history of its
mostly US-based debt investments, and the International Finance Corporation
(“IFC”) revealed some performance history for its EM private equity investments
which we analyze in Appendix V: Additional returns data 32 . Below we analyze the
broad range of investments covered by the GIIN Survey.
Characterizing the investments reported in the GIIN Survey: 24 respondents
The Survey was sent primarily to the GIIN Investors’ Council, a group of principal
investors and capitalized investment funds that manage impact investments and
participate in industry-building activities. A few additional participants brought the
total number of survey respondents to 24 33 . In Table 3 we show the distribution of
reported deals across investment instrument type. Table 4 shows the sector
distribution, and Table 5 shows the regional focus 34 .
In each table, we show both the number of deals and the notional amount represented
by each category. We find that most of the investments reported were made via
private equity or debt instruments. Among the sectors, microfinance is the most
frequently referenced, which is unsurprising as it is one of the most mature of the
impact investment sectors and presents lower barriers to entry 35 to new investors. In
terms of geographic distribution of investments, the US dominated our data set.
32 Since that data set is from a single source and potentially skewed as a result, we do not mix
the results of that analysis with the results of the GIIN Survey.
33 For a full list of survey respondents, see page 82 in the appendix.
34 While we received 984 individual data points, 7 of those data points represented regional
aggregates. In our work, we have accounted for the total number of investments those
aggregates represent as well.
35 Over 90 dedicated microfinance investment vehicles exist and are catalogued on the MIX
Market website (www.mixmarket.org).
30