Impact investing is capturing the attention of investors across the world. Last year, 209 leading impact investors committed $22 billion to nearly 8,000 impact investments, and planned to increase capital invested this year by 17% and the number of investments by 20%.
Throughout the industry’s development, however, some investors have questioned the ability of impact investments to generate financial returns similar to traditional investments, and lack of data has left this question unanswerable.
This research shows that impact investors that target market-rate returns can achieve them. Across the three largest asset classes in impact investing — private debt (34%), real assets (22%) and private equity (19%) — the distribution of fund returns is similar to those in analogous conventional markets.
According to the report, these fund managers pursue a variety of impact themes, among them financial inclusion, access to clean energy, sustainable timber and low-income housing. The research also shows that performance varies considerably among funds, as it does in conventional markets. The implication: fund manager selection is key to achieving robust returns.
One important aspect of impact investing, often overlooked by critical observers, is that not all impact investments seek to achieve market rates of return. Some impact investors intentionally target below-market returns given the nature of their strategies.
According to the research examined by GIIN, these so-called concessionary impact investments can be a sustainable funding source for impactful organizations historically reliant solely on grant funding.