Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Table 3: Instrument distribution
# of
deals
Notional
($ mm)
Private debt 629 921
Private equity 301 836
Deposits 91 73
Bilateral loan agreement 32 102
Real Assets 29 489
Equity-like debt 15 8
Guarantee 7 50
Public debt 1 2
Public equity 0 0
Total 1,105 2,481
Source: GIIN, J.P. Morgan.
Table 4: Sector distribution
# of
deals
Notional
($ mm)
Microfinance 307 661
Agriculture 208 132
Cross-sector 189 412
Other* 136 246
Housing 130 790
Energy 53 94
Healthcare 42 57
Education 30 82
Water 10 7
Total 1,105 2,481
Source: GIIN, J.P. Morgan. *”Other” includes community
development finance.
Table 5: Geographic distribution
# of
deals
Notional
($ mm)
US and Canada 411 1,381
Latin America 268 223
South and Southeast Asia 107 130
Sub-Saharan Africa 99 154
E. Europe, Russia & Central Asia 92 184
Global 63 239
Western Europe 52 129
Emerging markets 7 35
Middle East and North Africa 6 5
Australia & New Zealand 0 0
South Pacific 0 0
1,105 2,481
Source: GIIN, J.P. Morgan.
Return expectations vary substantially, from competitive to concessionary
The most informative (and statistically significant) data are the return expectations
reported across investment types and regions. In Figure 8 we show the distribution of
respondents’ return expectations by investment type and region alongside actual
historical average returns for traditional investments in each instrument type and
region. (Further information on our choice of benchmarks follows). Survey
participants were given a predetermined choice of return ranges (0–4.9%; 5–7.9%;
8–11.9%; 12–14.9%; 15–19.9%; 20–24.9%; 25%+) which is why the averages are
presented in the form of ranges rather than single data points.
The data reveal that expectations for financial return vary dramatically. Some
investors expect returns that compete with, and even outperform, traditional
investment benchmarks, while others concede that their impact investments may
deliver a lower return than that of a comparable investment that does not target social
impact. Impact investors in EM venture capital expect average returns of 12–14.9%,
which compares to an average realized return of 10% for traditional EM venture
capital investments. For EM debt, impact investment return expectations are 8–
11.9%, versus an average realized return of 9% for the chosen benchmark. In the
case of developed markets (DM), impact investors expect average returns of 0–4.9%
for debt and 15–19.9% for venture capital, compared to the 11% and 28% average
actuals for chosen benchmarks.
Analysis of whether or not there exists a return trade-off in impact investing depends
on instrument type, investor perceptions, and of course, chosen benchmarks. DM
debt investors on average appear to expect some return sacrifice. This could be
explained in part by regulatory features and, in some developed markets, tax
incentives that encourage investment in lower-return social ventures. EM debt on the
other hand appears to target returns that are competitive with long-term realized
index returns. For equity, the results are mixed. If we benchmark against the realized
DM and EM index returns, impact investors’ targets appear competitive for EM but
concessionary for DM. If, on the other hand, we benchmark against the 20–25%
gross returns that we believe new managers would target, then there does appear to
be a trade-off for EM.
31