Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
foundations and mission driven investors willing to trade off financial return for
social impact. Many newer entrants have a greater motivation, and in some cases, a
fiduciary duty to balance strong financial returns with social impact.
Deposits, guarantees and other investment instruments
As shown in Table 3, beyond equity and debt, there are also deposits, guarantees,
equity-like debt and real asset investments reported within our data sample. The
$73m of reported deposits were all US-based, with return expectations (some of
which were realized) in the 0–4.9% range. The $50m of guarantees were made with
similar return expectations, though some were made outside the US and Canada. The
survey also captured $489m of real asset investments, all of which were made in the
housing sector in the US or Canada. No return expectations were reported for those
investments. The equity-like debt investments totaling just $8m 37 are more globallybased
and focused mostly in the microfinance sector. Return expectations for these
investments range broadly, from less than 0% to as high as 15–20%.
For more on developed market
debt investments, see Appendix
V: Additional returns data
Realized debt returns broadly reflect the range of expectations: EM provides
higher yields
Zooming into the realized return data, we now show only the debt investments
separated into the developed (Figure 13) and emerging markets (Figure 14). All of
this data was provided by the same two respondents, so we caution against
extrapolation, but present this data as one piece of evidence that the expectation of
higher yields from emerging market debt investments is potentially justifiable.
Interestingly, DM debt realizations outperform the average expectations. The amount
of private equity realized return data is so small – only 20 deals amounting to $8m of
notional – that it does not provide much insight. We have omitted that data for this
reason.
Figure 13: Realized returns – Developed market debt investments
Total # of investments = 114; Total size of investments = $94m
x-axis: Year of investment; y-axis: Return (gross annual yield, in USD)
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1998 2000 2002 2004 2006 2008 2010 2012
Source: GIIN, J.P. Morgan. Investments for which no return was reported are not included.
Figure 14: Realized returns – Emerging market debt investments
Total # of investments = 97; Total size of investments = $61m
x-axis: Year of investment; y-axis: Return (gross annual yield, in USD)
20.0%
16.0%
12.0%
8.0%
4.0%
0.0%
1998 2000 2002 2004 2006 2008 2010 2012
Source: GIIN, J.P. Morgan. Investments for which no return was reported are not included.
Excludes five investments ($2mm notional value) with negative returns.
Beyond returns: Characteristics of surveyed investments
Investment sizes remain small, while costs are high…
One of the characteristics of impact investments that many investors will struggle
with is the small average deal size. Figure 15 illustrates the range of investment sizes
37 Equity-like debt investments are defined for the purposes of our survey as: An instrument
between debt and equity, typically a debt instrument with potential profit participation. E.g.
Convertible debt, warrant, debt with equity kicker.
34