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Impact funds must be lower returning ('concessionary') – wrong?

A recent opinion piece in Institutional Investor (II) by a Georgetown University Fellow and seed stage impact investor, in a tightly worded article, seeks to answer the question we often get: 'doesn’t impact investing necessarily deliver lower returns or lower risk-adjusted returns versus comparable private investments?' These authors find from their research…

On average, impact funds actually outperformed their peers, with more than 50 percent of the funds we analyzed beating their fund vintages’ benchmark.

The authors use performance data from PitchBook, one of the largest databases of private investment funds, to track the performance of impact funds as determined by their membership in FaithInvest friend GIIN, or Impact Capital Managers. They construct a performance benchmark of the GIIN/ICM member’s impact funds for seven vintage years, and compare these to similar benchmarks of non-impact funds. Their analysis shows that impact funds outperformed their non-impact counterparts in five of the seven measured vintage years, often by significant margins, as shown here:

But what about risk adjusted returns – could impact funds be riskier than non-impact funds, negating some or all of the general outperformance?

The authors site a 2021 paper The Risk and Return of Impact Investing Funds  by professors from Cornell, HEC Paris and Yale, that '…found that these funds had a lower beta (a common financial measure of risk) than traditional venture capital funds and, as a result, would lower the beta of an investor’s entire portfolio' with the authors noting ultimately that '…investors could include impact funds in their portfolios to increase risk-adjusted returns'.

Finally, the II authors caution that their analysis is not definitive, as '…there simply isn’t enough data…', but still their results '…notably contradicted what critics of impact venture investing allege – that impact funds underperform peers'.

A few important notes: this is not peer reviewed academic research, with associated deep disclosures on data, analysis methodologies and more, and one of the piece’s co-authors is Managing Partner of Halcyon Venture Partners, a newer impact firm currently raising capital. Also, none of the above addresses questions we’ve heard from you on hurdles to 'access' to impact funds: fund fees, ticket sizes (minimum investment amounts) and liquidity terms, which can be impediments today for many impact interested investors. Interesting data nonetheless!


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