Performance and capital allocation are informing decision making to maximize financial and impact objectives
Investors’ dual objectives of financial gains and making a difference in the world are being driven by increasingly sophisticated methods.
As a sign of a maturing industry, investors are embracing impact investing with a multi-directional approach to their decisions according to a new report from the Global Impact Investors Network (GIIN).
“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,” noted Dean Hand, Director of Research (GIIN).
More experienced impact investors are 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.
The research focuses on the three most common asset classes in impact investing: private equity (70% of investors), private debt (58%), and real assets (17%. It includes 171 market-rate-seeking impact investors globally investing primarily in private markets, mostly asset managers, with 39% from Canada and the US.
Financial results
The report confirmed GIIN’s earlier research into financial performance of impact investments.
It found that private debt impact funds generate stable financial returns on a risk-adjusted basis, and financial returns across private debt investments tend to align with investor expectations; and impact debt funds can play an important role in risk reduction and diversification.
Private equity impact investors can generate market-rate returns on a risk-adjusted basis, yet financial returns vary significantly, reflecting how different strategies and investors’ objectives can shape financial performance; and smaller funds tend to outperform market and investor expectations.
The full report is available at thegiin.org
