Do investors have to settle for lower returns as a tradeoff for investing in portfolios that make a social impact? Maybe not, according to “Great Expectations: Mission Preservation and Financial Performance in Impact Investments,” a new report from the Wharton School of the University of Pennsylvania in Philadelphia.
The study examines two of the most important aspects of impact investing—financial returns and long-term impact. It was supervised by finance professors David Musto and Chris Geczy; authored by the Wharton Social Impact Initiative (WSII); and supported by the Skopos Impact Fund, a global impact investment fund, and EMPEA, a nonprofit for private capital in emerging markets.
Musto and Geczy evaluated the financial performance of 53 impact investing private equity funds, representing 557 individual investments, relative to public market indices such as the Russell 2000. They determined that the segment of impact funds in this sample that reported seeking market-rate returns achieved results comparable to market indices. The goal, says Geczy, was to examine “the tension between profits and purpose.” WSII researchers intend to continue the project for the foreseeable future.