Impact Investing

New Research Shows Impact Investments are Living up to Great Expectations

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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?

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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

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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

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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.

Business as a Force for Social Good

Posted on by Case Foundation

This post was written by J.D. Brady on behalf of the Case Foundation:

At the Case Foundation, we believe impact investing is an excellent example of how business and philanthropy can work hand-in-hand to drive social change. We applaud the work of for-profit enterprises that deliver both a financial and social return, and we encourage investors to support the growth of these companies.

J.P. Morgan’s Nicholas Tedesco is doing just that–creating a bridge between for-profit and non-profit worlds. He joined us at MCON 2015—our annual event that brings together thought leaders from across sectors to explore new ideas regarding engagement with the Millennial generation. As a Senior Philanthropic Advisor in the J.P. Morgan Philanthropy Centre, Nicholas helps clients achieve their philanthropic goals. Before joining J.P. Morgan, Nicholas was with the Bill and Melinda Gates Foundation. In that role, Nicholas helped launch the Giving Pledge, an undertaking that encourages the world’s wealthiest people to dedicate the majority of their wealth to philanthropic endeavors. To date, nearly 200 philanthropists have signed the pledge.

The Case Foundation sat down with Nicholas to discuss the Millennial generation’s approach to investing, where the impact investing sector is headed and what challenges leaders in the philanthropic space.

CF: How do you see Millennials engaging in philanthropy?

NT: It has been widely talked about that we are in the midst of the greatest wealth transfer in history–-the next generation will inherit an estimated $59 trillion over the next 40 years and are positioned to be some of the most influential donors in history. We are seeing some interesting trends among Millennials with respect to their giving. It is starting earlier: wealth is being made at a much earlier age and on a much larger scale than ever before. And people are looking to give back much earlier. They are taking a venture approach–-they are looking to address large-scale social problems with a more hands-on and results-oriented approach. They are also willing to experiment and test new approaches and are more apt to employ nontraditional methods like impact investing.

CF: What is the most interesting thing that you’ve seen in the last year regarding impact investing?

NT: One of the most interesting things I have seen in the last year is the rise in popularity of social impact bonds. Although they are still largely in their infancy, social impact bonds are gaining traction. Utah is spearheading a program that will bring a lot of attention to the “pay for success” model, as are California and Oregon. Although the model will likely never be widely adopted due to its reliance on the government, it is shedding light on the importance of impact metrics.

CF: Is the impact investing movement growing? Do you think we’re at a tipping point?

NT: I absolutely believe that the impact investing movement is growing–-particularly on the west coast. Its core tenants appeal to younger donors who are eager to tackle longstanding social issues with a multipronged approach. We are also seeing an increased awareness among the business community that social and economic returns do not have to be mutually exclusive and decoupled. I do not think we are at a tipping point (yet). We need a few more years to allow more deals to surface, investments to mature, and thought leaders (like Jean and Steve Case) to inform the general public. Impact investing is still a largely unknown and young movement and people are reluctant to be a pioneer.

CF: What are the greatest challenges philanthropic leaders are addressing today?

NT: One of the greatest challenges philanthropy–-as a discipline–-is facing is how to define and measure impact. Americans gave a record $335 billion to charitable causes in 2013, yet it is hard to quantify the impact of those gifts. There are very few philanthropists who are equipped to adequately assess the yield of their grants–-with a large number of donors simply trusting their grantees to execute a successful strategy. However, we are seeing an increased focus on measurement and evaluation from philanthropists at all levels, and as a result, we are seeing donors who are much more engaged with the organizations that they choose to fund.

This is the fourth in a series of blog posts featuring speakers from MCON 2015. Check back to learn about more innovators and leaders from the private, nonprofit and public sectors. Also, be sure to check out the 2015 Millennial Impact Report. 

Impact Investing Gets a Four Billion Dollar Boost

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Today, the White House hosted a summit that highlighted more than $4 billion in commitments to finding solutions to climate change. These commitments – from foundations, investors, federal agencies and others – represent the diverse ways that private capital can be mobilized for public good.

Sonal Shah, former Senior Fellow at the Case Foundation and current Executive Director of the Beeck Center for Social Impact + Innovation at Georgetown University, has been engaged with policymakers and investors on how to build smart, high-impact partnerships that bring the talent and resources of the private sector into the business of social change. Read more about today’s announcements from Sonal in her blog.

The commitments announced today represent the increased interest from investors to bet on the ingenuity of the private sector to find sustainable solutions that address climate change. They also represent the commitment from the federal government to spur innovation in the sector and convene a wide range of stakeholders who have committed to allocate capital to build the clean tech ecosystem.

The announcements today follow $2 billion in commitments announced by the private sector in June of 2014 to make investments in companies, funds and programs that aim to generate both financial and social returns. Those announcements were accompanied by the release of a report – Private Capital, Public Good: How Smart Federal Policy Can Galvanize Impact Investing – which provided a framework for policymakers in support of impact investing.

The announcements follow other recent news of the private sector thinking big about impact investing. In February, BlackRock—the world’s largest money manager—announced the launch of a new business unit, BlackRock Impact, to be led by former Robin Hood Foundation President and COO Deborah Winshel. In April, Bain Capital announced that former Massachusetts Governor Deval Patrick would lead its new impact fund.

The last year has also seen the creation of impact funds by global corporations like Mars and Danone, as well as new investments in responsible companies and funds by respected entrepreneurs like Bill Gates, Reid Hoffman and Marc Andreessen. The number of certified B Corps has grown to over 1,300, and certified B Corp Etsy announced an IPO in April. Finally, the public markets for responsible investments are also growing—US SIF’s biannual report released in late 2014 found that SRI investing in the United States had increased 76 percent since 2012.

Jean Case said in April that it’s a new inning for impact investing. The $4 billion in commitments announced today strengthen the all-star lineup of investors, companies, and government agencies that are mobilizing the power of the private sector to address some of our most critical challenges.

Impact Investing Conversations Expand at Milken Institute Global Conference

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This year, Case Foundation CEO, Jean Case, and team again traveled to the Milken Institute Global Conference to lead conversations about how business can contribute to solving social problems. The Milken Institute has the mission to increase global prosperity by advancing collaborative solutions that widen access to capital, create jobs and improve health, and impact investing is increasingly seen as one of those collaborative solutions that will bring new capital and talent to the social sector.

For some background on the good news from the last year in impact investing, check out Jean Case’s blog that ran the first day of the conference: “A New Inning for Impact Investing.” And take a look at Jean’s ongoing series on Medium—”5 Characteristics of Thriving Social Entrepreneurs” for even more detail on best practices for starting and growing a business that turns a profit and changes the world.

At the Global Conference, the Case Foundation and our partners–Omidyar Network and the Milken Institute–hosted a roundtable of investors and funds to talk about the great progress from the past year—including announcements of new impact practices at Bain and BlackRock, and $2 billion worth of new commitments to impact investing from investors like Prudential, McKnight Foundation, Ford Foundation and others. The group at the roundtable also discussed ongoing challenges in the field—including the need for better measurement of social impact, need for more deal flow and the need for more education for investors and advisors on risks and opportunities.

Jean also moderated a panel—Impact Investing 2.0: Finding Value in Doing Good, which focused on the range of products, asset classes and returns expectations that are available to new impact investors. She kicked off the panel by saying, “We see a new class of entrepreneurs who don’t just want to build companies for profit, they want to address a social challenge. And there’s a new class of investors across sectors that want more than just a financial return from their investments.”

It was a lively discussion featuring Kimbal Musk, founder of The Kitchen and member of Tesla’s board; Thomas Hyland from Aspada Investment Advisors; Jacqueline Novogratz from Acumen; Dimple Sahni from Anthos Asset Management and Gary White from Water.org. You can find the full video of the panel here.

Jean also joined Forbes Editor, Randall Lane, at a dinner to talk about how philanthropists can think about the opportunities that are available to them, from grants to support organizations like B Lab that are building a stronger ecosystem to high-return, for-profit investments in social enterprises and funds.

We hope you will join us as we continue the conversation with partners like the Milken Institute and others over the course of this year. As Jean said during the events at Milken, “Too often we haven’t invited businesses, and specifically entrepreneurs, to the table in solving social problems.” Impact investing presents a path forward to bring the power and talent of the market and the private sector into the business of solving some of our most pressing social challenges.

For more, watch Jean Case’s discussion with TheStreet’s Rhonda Schaffler about the growth in impact investing and why a whole new generation of tech entrepreneurs are making more investments in the space. 

Will David Chen of Equilibrium Capital Pioneer “The Next Stage” of Impact Investing?

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The challenge of climate change is not new in the U.S., and recent political dialogue on the subject suggests a renewed urgency to address it.

This week, the focus of our spotlight on social enterprise with Entrepreneur.com, in partnership with ImpactAlpha, is on a West Coast company, Equilibrium Capital. Led by former venture capitalist and tech executive David Chen, this asset management firm is putting big dollars into play to demonstrate that sustainable resource management is essential for long-term, high-return investing.

Equilibrium Capital was formed in 2007 in response to new trends that Chen recognized as keys to reshaping major commodity sectors: rising middle class consumption and a new focus on water use. He started Equilibrium to capitalize on shifting values and new market opportunities born out of increasingly constrained natural resources and increasing demand for those same resources.

Chen founded the firm to be a sustainability-driven asset manager for institutional investors that delivers both a reliable financial return and intentional positive impact on communities and the environment. To do this, Equilibrium is providing innovative investment products, operating a portfolio of real assets, promoting transparency in the portfolio and scaling capital from diverse investors. Its portfolio currently includes opportunities in renewable energy, sustainable agriculture, green real estate and water management.

Equilibrium’s work is not going unnoticed. Despite the focus on sustainability, its investors aren’t just “do-gooders” who are willing to trade profit for social gains. Equilibrium’s investors expect a market rate of return. The firm has even attracted some of the most risk-averse investors in the world—pension fund managers—who, by the way, control trillions of dollars.

So, is impact investing a tool to create the positive environmental outcomes needed to address climate change? Time will tell, but returns so far seem to show that Equilibrium’s real assets are lower-risk than might be expected. To read more about how Equilibrium is creating positive impact and hoping to pioneer the next stage of large-scale, high-return impact investing, visit Entrepreneur.com for the full story.

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