Impact Investing

New Research Shows Impact Investments are Living up to Great Expectations

Posted on by Case Foundation

This post was contributed by Steven Rodriguez, intern at the Case Foundation.

The Wharton Social Impact Initiative (WSII) at the Wharton School of the University of Pennsylvania recently released a study called Great Expectations: Mission Preservation and Financial Performance in Impact Investments. It included 53 impact investing private equity funds and revealed exciting data for those who are eager to know how these investments can and do perform compared to market benchmarks. According to this research, there is evidence that market rate returns for mission-aligned investments are, in fact, possible*. While the impact investing market remains relatively small, there are active investors who do not think doing good should mean sacrificing returns. For these market-rate-seeking impact investors, the new Wharton report should come as very good news!

As Kate Ahern from the Case Foundation explained during a recent webinar, Everything you Need to Know About Impact Investing (In 1 Hour!), investors can approach the sector with a range of financial and social impact return expectations—from a sector first focus, to blended returns, market rate or even impact alpha. While the WSII research focused on investments seeking market rate returns, something worth noting in the findings is evidence that mission-aligned exits led to even greater performance than non-mission aligned exits. Additionally, Wharton found that “concessionary financial returns were not required to preserve the social or environmental effect of impact investments.”

This report provides evidence that investment managers can align impact goals with financial expectations without sacrificing performance. According to an article in The Chronicle of Philanthropy, Wharton Finance professor, Chris Geczy, who supervised the research, said, “It represents an exciting initial advancement in our ongoing social impact research agenda.”

While the data demonstrates favorable outcomes for impact investing and for fund managers seeking market rate returns, it is important to keep complexities associated with various return expectations in mind. As Professor Geczy explained, “The industry includes distinct market segments with very different social and financial value propositions. One must be very careful not to generalize the performance of the market rate-seeking segment of funds that we studied to the entire, multidimensional industry.” It is important to remember the spectrum of opportunities available for the diverse impact investing community, from foundations making below-market Program Related Investments (PRIs) to early stage venture firms making direct investments in companies, like Happy Family, that generated huge returns from a successful exit.

The Wharton report is one of a growing number of similar research projects focused on the financial viability, competitive performance, risk and expectations of impact investments, particularly fund investments. One additional example that appeared earlier this year is a report from the GIIN and Cambridge Associates, Introducing the Impact Investing Benchmark, a study of 50 impact funds launched after 1998. The study found that these funds delivered returns comparable to other, non-impact seeking funds.

We at the Case Foundation are excited to see the knowledge base continue to grow in this sector. We hope these reports will serve as support for more and better informed investment decision making that includes impact investments from the full range of asset classes, returns and risk profiles.

To learn more about getting started in impact investing you can also check out our updated Short Guide to Impact Investing!

*The financial performance of the funds studied were benchmarked against the Russell 2000, an index that measures the performance of small capitalization companies (between $300 million and $2 billion), along with other indexes and found comparable results.

Still Have Questions About Impact Investing?

Posted on by Case Foundation

We’ve got Answers. Here’s a recap from the recent webinar: Everything you need to know about impact investing (in 1 Hr!). For those of you who missed it you can WATCH the webinar, which featured our own Jean Case and Kate Ahern of the Case Foundation; Melanie Audette of Mission Investors Exchange; Dan Brillman of Unite Us; and Stacy Donohue of Omidiyar Network.

Jean Case, CEO of the Case Foundation opened the discussion with a description of why impact investing and social enterprise are opening the door to important new opportunities for philanthropists to experiment and start making real impact. She shared pivotal trends and exciting recent developments in the field, like Happy Family’s big success for investors, which earned up to 30 times their return when Danone purchased the company. Finally, she provided insights into how foundation leadership can start to move from idea to action on impact investing.

Next, Kate Ahern, VP of Social Innovation at the Foundation gave an overview of the ins and outs of impact investing. She explained the range of options available for investors looking to bring their social goals to their financial strategy and vice versa. She also identified some of the unique opportunities for organizations like foundations to engage in the field, for example through Social Impact Bonds and backing supportive policies.

Stacy Donahue, Investment Partner at Omidyar Network and Dan Brillman, Founder and CEO of Unite US shared the perspectives of a social investor and a social entrepreneur. Omidyar Network has, through its LLC, provided Unite US with a Series A equity investment. Together they provided a rare look into the practical interactions between a company and its philanthropic, for-profit investor. Both Donahue and Brillman shared great insights into the values of reaching beyond your bubble for highly impactful collaborations.

At the Case Foundation we believe in the power of philanthropy, nonprofits and government to drive social change, that’s why we’re so excited about the growing momentum in impact investing. Over the course of the last two years we have witnessed a number of game changing moments, which we featured in our recent blog post, A Hot Summer for Impact Investing. From Goldman Sachs Asset Management’s recent acquisition of Imprint Capital, to impact investing champions like Darren Walker and the Ford Foundation taking leadership of the U.S. National Advisory Board on Impact Investing—each of these efforts have been rooted in building a strong ecosystem for the sector.

As part of this commitment to the ecosystem, we have spent countless hours educating and activating greater numbers of impact investors and educating others on this powerful tool for social change. Last year we released A Short Guide to Impact Investing, a quick and easy to read resource for anyone interested in impact investing. This year we’ve embarked on a number of educational events—from our journalists training hosted in conjunction with the ImpactHub and Arabella Advisors, to our webinar, this week, in partnership with Council on Foundations and Mission Investors Exchange.

We hope you will continue the conversation with us as we continue to explore more opportunities to drive social change through social entrepreneurship and impact investing—join us on Twitter using #ImpInv.

Questions about Impact Investing? Join our Webinar to get the Answers!

Posted on by Case Foundation

Chances are you’ve had a conversation, read an article or seen some news recently on impact investing and social enterprise. These hot topics are important subjects of conversation in the social sector—and issue areas you need to know about.

As the buzz grows more questions continue to surface what is impact investing really; how does it work; what are my options? And most importantly is it right for me and my organization?

On September 15th from 2:00 to 3:00 pm ET, the Case Foundation, in partnership with the Council on Foundations and Mission Investors Exchange, will host a webinar to cover everything you need to know about impact investing, in just one hour. Register today to reserve your spot.

During this free webinar, Jean Case, CEO of the Case Foundation will join Melanie Audette, Acting Managing Director at Mission Investors Exchange and other industry leading impact investors and civic-tech social entrepreneurs. Together, they will explain the full range of options available to empower foundations interested in deploying their philanthropic resources toward social good through impact investing.

Register today for free!

 In preparation for the webinar, download your free copy of A Short Guide to Impact Investing.

A Hot Summer for Impact Investing

Posted on by Case Foundation

The past few months have been full of news on the growing impact investing sector. Coming off of the announcements earlier this year—Bain Capital starting an impact fund under the leadership of Governor Deval Patrick, BlackRock starting an impact practice and Darren Walker and the Ford Foundation taking leadership of the U.S. National Advisory Board on Impact Investing—Jean Case recently described the increased buzz and activity as A New Inning for Impact Investing. She shares her insights on the growing movement that has until recently been in “spring training,” and an all-star line-up that is now taking shape.

We’ve summarized several key pieces of news from the past few months so you can read all about the latest updates. We look forward to seeing even more momentum this year!

 

Global Progress on Impact Investing

The Social Impact Investment Taskforce, established under the British presidency of the G8 in 2013, met in London in July to talk about progress achieved by member countries and to discuss what’s next for the group. Private and public sector representatives from G7 countries, the EU, Australia, Brazil, Israel, India, Mexico, Portugal, South Africa, China and others were present. Sir Ronald Cohen, Chair of the Taskforce, opened the Plenary Meeting by saying that “it’s impossible to stop an idea whose time has come,” and country report-outs on progress seemed to strongly support that statement. You can find presentations and reports from the Plenary Meeting on the Taskforce website.

New Report: Impact Investing Can Provide Market-Rate Returns

The Global Impact Investing Network (GIIN) and Cambridge Associates released results from a new study, the Impact Investing Benchmark. The report presents aggregate financial performance from 51 private equity and venture capital impact investment funds that have the intention to generate measurable social impact alongside a financial return. The report reveals that many of the early funds, established between 1998 and 2004, have achieved market rate or above market rate returns, demonstrating that impact investments don’t necessarily require financial sacrifice. GIIN and Cambridge Associates will provide quarterly updates on the benchmark.

Mixed Results for Social Impact Bonds

In an attempt to more effectively combat youth recidivism at the Rikers Island jail in New York, Goldman Sachs and Bloomberg Philanthropies launched the first Social Impact Bond (SIB) in the United States in 2012. The program provided cognitive behavioral therapy to youth at Rikers in an attempt to reduce their likelihood of returning to jail. Unfortunately, the new therapy didn’t work to reduce recidivism at Rikers, so the program has ended, and Goldman Sachs and Bloomberg Philanthropies have lost their $7.2 million investment.

Technically, the SIB worked: the program didn’t generate results, so taxpayers didn’t have to pay for it. Of course, we all hoped that the new intervention would have reduced recidivism. However, the pioneering model enabled government to experiment on providing a new and different service that might have led to better outcomes, but without the financial risk. This model of de-risking will hopefully lead to more innovation in provision of services even when government budgets are tight.

There was more positive news out of the UK, where three SIBs returned investor capital. Each of the three SIB partners—Career Connect, Teens & Toddlers and Advisa—met their goals, and investors received a financial return ahead of schedule. The nonprofits worked with Social Finance to improve educational participation for 4,000 teens through a number of activities, including job coaching and after school programs.

Better Outcomes at Lower Cost: Congressman John Delaney’s TEDx Talk on Pay for Success

Congressman John Delaney has been a consistent advocate for Social Impact Bonds and Pay For Success models as a means to address three challenges in government: lack of funding, inability to innovate and insufficient data on social impact. Watch Congressman Delaney’s call-to-action to “put aside the ideological divide” and “stand up for a smarter government” that can “intervene and make a difference in people’s lives but is focused on innovation, fiscal responsibility and focused on new ways of delivering its services.”

Goldman Sachs Asset Management Acquires Imprint Capital

In July, Goldman Sachs Asset Management announced its acquisition of Imprint Capital, an impact investing advisory firm. This acquisition highlights the growing need for impact investing experts within the traditional asset management field and a growing demand for products that consider environmental, social and governance as well as other impact metrics.

Millennial Entrepreneurs Get a Chance to Turn Ideas Into Reality

The Case Foundation is a proud sponsor of the Forbes $1 million Change-the-World Social Entrepreneurs Competition, which will identify and reward young social entrepreneurs leading for-profit and nonprofit social enterprises that address global challenges. This competition presents an opportunity for bright minds under 30 to change the way we approach social issues of our time. If you’re under 30 and changing the world, or you know someone who is, please apply! The deadline is August 26.

Excited about the news and want to learn more about impact investing? Follow our twitter feed @CaseFoundation, and check out the Case Foundation’s A Short Guide to Impact Investing.

Social Impact Bonds: Investing in Public–Private Partnerships at the National Level

Posted on by Case Foundation

The Social Impact Partnership Act

With tighter local and federal budgets, how can government more effectively innovate to achieve the public outcomes that Americans desire? One growing trend, both nationally and internationally, is social impact bonds (SIBs). Recently, Congressmen John Delaney and Todd Young, in partnership with America Forward, hosted a briefing on Capitol Hill releasing updates to the Social Impact Partnership (SIP) Act that expands support for SIBs at the federal level. Congressmen Young and Delaney, along with a bipartisan group of co-sponsors, introduced the SIP Act in the House on March 4, 2015 (similar legislation was introduced in the Senate on April 27, 2015, with sponsorship from Senator Orin Hatch). The SIP Act is intended to create federal-level support to help city and state governments leverage SIBs as a way to tackle local community problems with greater efficiency and accountability.

During the briefing, Brian Beachkofski, senior director at Third Sector Capital Partners; Jeff Shumway, vice president of advisory services at Social Finance, Inc.; and Jeremy Keele, executive director of the Policy Innovation Lab at the University of Utah, highlighted a number of SIBs-based projects currently being constructed in cities such as Salt Lake City, Boston, Chicago and Washington, DC.

How SIBs Function

SIBs, despite the name, are not actually bonds. Originally introduced in the United Kingdom, they are a new method of funding social services in a way that promotes outcomes over the number of services provided. One of the primary benefits of SIBs is the increase in efficiencies through private-sector capital and insights that allow government to identify what works before deploying tax dollars on an intervention (full definition). Other benefits to SIBs are the potential to fill certain social gaps, promotion of bipartisan cooperation within government and the opportunity to put tax dollars to work more effectively. (Watch Congressman Delaney’s TEDx Pennsylvania Avenue talk on SIBs.)

SIBs flow chart 7-28-15
Image developed by Third Sector Capital Partners – Pay for Success Mechanics

 

Recent Results

The first U.S. SIB contract recently came to a close, providing the market with some valuable lessons. As a government-contracting model, this SIB proved that through creative partnerships the government could experiment without passing the risks on to taxpayers. While the program did not achieve the desired social outcomes—reducing recidivism rates at Rikers Island prison in New York—the city now has a better understanding of this intervention and can make adjustments in the future.

Continuing the 2014 Momentum

Last year, SIBs gained wider attention following two major milestones—the U.S. National Advisory Board (U.S. NAB) publicly launched in June 2014, and in November 2014 it released a report of recommendations for federal policy on impact investing, Private Capital Public Good. Today, SIBs remain an underleveraged tool; however, the Foundation is excited to witness the progress that has grown from the work of the U.S. NAB. Policymakers around the world are seeing the value of bringing the talent, time, philanthropic will and assets from all sectors together to tackle major social problems.

As a member of the U.S. NAB to the G7 Task Force on Impact Investing, Jean Case has been an advocate for the powerful potential and virtues of this “all oars in the water” approach to solving society’s most intractable obstacles. By engaging private investors through both their immense capital assets and talent, we at the Case Foundation believe that governments and service providers will have the support to realize big, measurable gains on the issues communities care about most.

We look forward to more progress and to a future with more innovative government funding for measurable outcomes and impact.

Celebrating Inclusive Entrepreneurship at White House Demo Day

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American innovation has long been the envy of the world. Throughout our country’s history, thanks to our free enterprise system, people from all walks of life have brought forth innovations that benefited society broadly—in all sectors such as energy, transportation, health care and more. These innovations often came about from those who “lived the problem” and dreamed great solutions that could benefit the masses. These were entrepreneurs who built young enterprises to bring their products and services to market and who often changed the world in the process.

Today, we need to ensure that American innovation isn’t simply about providing more convenience for the privileged—such as easier hotel bookings, more and comfortable ways to get from point A to point B or same-day delivery of groceries from an upscale market. To build solutions for the future, we need to move beyond the “app culture” and engage a new class of entrepreneurs—many who have lived real problems and are building real solutions to the challenges in our communities, and around the globe. But in recent years, this segment of entrepreneurs has often been left on the sidelines of innovations, with no steady flow of capital, mentorship or celebration focused on them.

It is well known that the vast majority of today’s celebrated startups continue to be founded by white, well-educated, well-networked males. And while we celebrate all startups and new innovations—we are underleveraged as a nation if those in more marginalized communities are left on the sidelines. There is, for instance, immense potential for women, people of color and those who don’t live on the coasts or graduate from our nation’s most elite schools. Women are leading 36 percent of all businesses in the U.S., but only receive 10 percent of venture capital funding. Minority-owned businesses are growing at a faster clip than non-minority owned businesses, but are receiving an even smaller fraction of investments. Seventy five percent of venture capital today goes to three states—California, New York and Massachusetts. There is a growing realization that this has to change, including at the highest levels in our nation and among those who are driving this change.

For example, today in New Orleans, PowerMoves, a minority-focused incubator, is backing young enterprises that reach across socio-economic barriers to bring opportunities to those often the last to benefit from innovation. In the first year of operation, PowerMoves worked with 87 companies to create 350 jobs in New Orleans and Detroit. Because of PowerMoves’ work, these companies were able to secure $14M in additional capital commitments to high growth, high tech startups led by entrepreneurs of color. Crystal McDonald, a PowerMoves entrepreneur, developed GoToInterview, a service to connect hourly workers with companies that have demand for them, and won the Rise of the Rest pitch competition in New Orleans.

And there are many more examples of entrepreneurs from underrepresented populations that are seeking solutions to problems that benefit all, like Pashon Murray, a dynamic entrepreneur of color in Detroit. Inspired at an early age by her father’s waste hauling company, Pashon turned family knowledge into a scalable business that takes food waste from companies, including General Motors and the Detroit Zoo, and transforms it into rich soil for local farmers to enhance crop productivity and create jobs. For Pashon, it’s not just about the hauling of waste—she is also a fellow at the MIT Media Lab studying the science of composting and waste reduction. She is combining science, engineering, the needs of a community and her entrepreneurial spirit to create a viable, scalable business in Detroit.

The opportunity to tap into the potential of these entrepreneurs is top of mind for us at the Case Foundation, and why we are delighted that today, the White House will host its first ever Demo Day, with a focus on inclusive entrepreneurship—bringing together entrepreneurs from all walks of life and from all across the country. We look forward to joining President Obama today in a commitment to see “more startup hotbeds emerge in every corner of America, and that those underrepresented in entrepreneurship are being tapped to fully contribute their entrepreneurial talents.”

In fact, here at the Case Foundation, we’ve long believed in the potential for unleashing entrepreneurs—and entrepreneurial approaches—as a clear path for making the world a better place. Over the past 18 years, we’ve developed and supported a range of initiatives—many of them in partnership with the White House, with Presidents of both parties—that put entrepreneurs in the middle of solving big problems, from the West Bank to Detroit, from DC to Nairobi. These initiatives include the U.S.-Palestinian Partnership, an effort to bring entrepreneurship opportunities to the West Bank that I was asked to co-chair in 2007 by President George W. Bush, and the Startup America Partnership, focused on celebrating and accelerating entrepreneurs here in the U.S., which we launched in partnership with the Kauffman Foundation and the Obama administration in 2011. More recently, our focus has shifted to an effort to unleash new capital for entrepreneurs building businesses that seek to address significant social challenges, through our work to catalyze the burgeoning impact investing movement.

Our efforts to support entrepreneurs and the role they play in driving innovation and job growth in the U.S. and around the world have certainly been rewarding. But in the past year, we began to ask ourselves, what role can entrepreneurship play in bringing new opportunities to those left on the sideline? How can we level the playing field for underrepresented communities—including women and people of color—to become entrepreneurs and grow thriving businesses? And how can we facilitate the creation of more businesses that address the challenges that marginalized populations are facing? To help us answer these questions, we began an exploration at the beginning of the year into potential opportunities for inclusive entrepreneurship, and funded two organizations doing important work in this space—Forward Cities and Opportunity Nation. We also joined the most recent Rise of the Rest tour, supplementing the visits to Richmond, Raleigh-Durham, Charleston, Atlanta and New Orleans with conversations focused on how to expand entrepreneurship as an opportunity for all. And we just returned last week from exploring these topics on a global scale during a trip to Africa, focused on exploring burgeoning entrepreneurial ecosystems in Kenya, Ghana and Nigeria.

We are committed to expanding our support for inclusive entrepreneurship, and in the coming months you will hear more from us on our efforts to build upon the momentum from national conversations around diversity, reduce common barriers to entrepreneurship faced by diverse entrepreneurs and scale local pilots into national programs serving women and entrepreneurs of color.

We have a tremendous opportunity today to tap into the uniquely American legacy of leveraging entrepreneurs to grow our economy, strengthen communities and solve intractable problems. But we’ll never recognize our full potential if we don’t focus on ensuring that we give all people—no matter their gender, ethnicity or economic background—the opportunity to be a part of growing entrepreneurial ecosystems, and tap their unique experiences to solve significant challenges. Imagine what is possible when we have a full team and all fields in play!

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