Three reports on the performance of impact investments have recently landed in my inbox. All three should be commended for their honesty and effort – with such data, the work of impact investors has become a little easier.
The first, The Social Investment Market Through a Data Lens, was produced for the Social Investment Research Council by EngagedX, an index for impact investments. It is a brave and ambitious attempt to combine into a common framework the results of different investors. Based on 426 investments that have matured, it says impact investors made a loss of 9.2 per cent and 10 per cent of investments were totally written off.
The objectives and approaches of these funds differ – some were more impact-oriented, others less so; but they have been combined without accounting for this. Nor is time taken into account: for example, if the average investment is held for five years, the average annual loss is only 1.9 per cent. The report does not tell us much about how long it took these investments to lose 9.2 per cent, and the costs of managing the funds were ignored. Finally, an old venture capitalist adage is that "lemons ripen faster than plums", so perhaps the investments that have not yet matured will reduce the 9.2 per cent negative figure.
It is a shame more funds did not participate. Two pioneers, the Esmée Fairbairn Foundation and Bridges Ventures, have spoken informally about their returns, but to my knowledge have not made such data publicly available. It would be particularly useful to see Bridges' data. It is the sector leader, and its inclusion would have increased the average returns in the study sharply; the mix of funds has an excessive impact on the average. Despite this, the report is an excellent first attempt at a tricky subject.
The second report, Introducing the Impact Investing Benchmark, is published by Cambridge Associates and the Global Impact Investing Network. It says 51 impact investment funds performed at nearly the same level as 705 comparable non-impact funds. Most crucially, more than half of the IIFs sampled were African and a third from the US. Interestingly, first-time funds performed well.
The third report, A Tale of Two Funds: The Management and Performance of the Futurebuilders England Fund, is a detailed analysis of Futurebuilders, which provided £145m of loan finance to the third sector. It is very well written and highly transparent.
A lack of performance data relating to social impact makes sensible comparisons challenging for all three reports. This should be integrated in the future, as should data on risk. I believe impact investment funds are less of a risk than mainstream funds and correlation to markets is low. I would love to know if I'm right. More impact investment funds need to participate in such exercises. This is especially true for IIF managers such as Bridges, Cheyne Capital and LGTVP, which have higher performance targets than those in the EngagedX study. We might then all feel better about the outcome of the reports.
Rodney Schwartz is chief executive of ClearlySo, which helps social entrepreneurs raise capital
