Impact Investment Delivers Comparable Returns – Report

“Doing well while doing good” is a viable investment strategy, according to research that shows impact investment offered comparable rates of return while delivering on social outcomes.  

The University of Pennsylvania's Wharton Social Impact Initiative report, called Great Expectations: Mission Preservation and Financial Performance in Impact Investments, was launched at the 2015 SoCap Conference.

The research evaluated the financial performance of 53 impact investing private equity funds, representing 557 individual investments relative to public relative to public market benchmarks, including the S&P Dow Jones Indices.

“Impact funds in the sample that seek market-rate-returns demonstrate that they can achieve results comparable to market indices, while still reporting mission preservation in the vast majority of their exited investments,” the report said.

The study also sought to determine the outcome of social missions once investors exit a portfolio, typically after five to seven years, or go into liquidation. The report found that few private equity funds were able to safeguard the social mission of companies after they sold their interests. Thirteen of 53 companies, eleven of which were liquidated, failed to preserve the social missions of the original company.

Wharton Finance Professor, Chris Geczy, said the report aims to fill the gap on impact investment research. As Pro Bono Australia News reported, the lack of data and measurement frameworks is preventing potential growth in the space.

“The study examines the tension between profits and purpose, also bringing to bear analyses characterising relative performance as well as statistical certainty about the result.  It represents an exciting initial advancement in our ongoing social impact research agenda.”

However, the report also flagged the need for more comprehensive research, stating there were limitations in the sample size and it only calculated gross returns, ignoring overhead costs.  

“Additional research in the field remains crucial to providing both general partners and limited partners with the data needed to understand the landscape and to potentially unlock additional capital in support of scalable impact,” it said.