Cambridge Associates & GIIN, 2015: Click here to read the report.
Cambridge Associates and the Global Impact Investing Network (GIIN) collaborated to launch the Impact Investing Benchmark, the first comprehensive analysis of the financial performance of market rate private equity and venture capital impact investing funds. While the impact investing industry is in an early stage of development, it is poised for growth. One of the chief barriers to industry advancement remains a paucity of robust research on financial performance. Credible data on risk and return can help both existing and future impact investors better identify strategies that best suit their desired social, environmental, and financial criteria.
At launch, the Impact Investing Benchmark comprised 51 private investment (PI) funds. Funds in the benchmark pursue a range of social impact objectives, operate across geographies and sectors, and were launched in vintage years 1998 to 2010.
Despite a perception among some investors that impact investing necessitates a concessionary return, the Impact Investing Benchmark has exhibited strong performance in several of the vintage years studied as of June 30, 2014. In aggregate, impact investment funds launched between 1998 and 2004—those that are largely realised—have outperformed funds in a comparative universe of conventional PI funds. Over the full period analysed, the benchmark has returned 6.9% to investors versus 8.1% for the comparative universe, but much of the performance in more recent years remains unrealised.
Impact investment funds that raised under $100 million returned a net IRR of 9.5% to investors. These funds handily outperformed similar-sized funds in the comparative universe (4.5%), impact investment funds over $100 million (6.2%), and funds over $100 million in the comparative universe (8.3%). Emerging markets impact investment funds have returned 9.1% to investors versus 4.8% for developed markets impact investment funds. Those focused on Africa have performed particularly well, returning 9.7%.
In all private investing, manager selection and due diligence are critical steps in the investment process and are important factors in obtaining superior returns and in risk management; impact investing funds are no exception. There are funds within the Impact Investing Benchmark that have performed in line with top quartile funds in the comparative universe, showing that market rates of return for impact investments are possible and also reinforcing that manager skill is paramount.
Creating and analysing benchmarks for private investments, especially for a younger, emerging portion of the market such as impact investing, poses a number of challenges. Difficulty acquiring private fund performance data and strict inclusion criteria limited our ability to amass a large dataset, which presented data analysis limitations that are unavoidable at this stage. Cambridge Associates produces an ongoing quarterly Impact Investing Benchmark report to track the industry over time.