News and analysis
December 11, 2014

‘Impact Investments’ Show Strong Returns, Survey Says

An overwhelming majority of "impact investments" met or exceeded financial and social-benefit goals, according to a survey released Thursday.

The survey, prepared by the Aspen Institute and the Global Social Enterprise Initiative at Georgetown University, was accompanied by case studies documenting the challenges and successes of the investing strategy.

Impact investing is an approach in which investors attempt to reap both a financial return and a social benefit, such as improved reading rates among young students or reduced recidivism among former inmates. The studied concentrated on investments intended to improve health and education or to reduce poverty.

Thirty-nine institutional investors who responded to the survey said they had committed a total of $2.5-billion to efforts in those designated areas. About half of the investors set both financial and social benchmarks. Of those, 80 percent said their investments had met or exceeded financial expectations, and 90 percent said their investments had met or exceeded social goals.

Respondents reported 33 "successful deals," a number that Anne Mosle, a vice president at the Aspen Institute, said should quell concerns over whether there are enough solid deals in the pipeline to attract investors.

"It’s not a huge deal flow, but there are good deals," she told a group of about 75 people from foundations, the financial sector, the federal government, and nonprofits who gathered at the Aspen Institute’s office on Thursday.

While most of the attendees at the event touted the impact investing as way to get "double returns" — both societal and financial benefits — many said it will be a challenge to bring the approach into the mainstream.

A lot of social investments are designed to help solve very specific problems, like creating an adequate supply of rental housing, said Debra Schwartz, who leads such an effort for the John D. and Catherine T. MacArthur Foundation. The small housing start-ups the foundation supports are unlikely to grow into huge companies that will attract huge amounts of capital.

"They’re not going to have an [initial public offering] as an exit, where the venture capitalists are just going to jump in," she said.

After 10 years, Acelero Learning, a New York for-profit company that runs federal Head Start education programs for prekindergarten students, is just beginning to provide a return for its investors. The company’s founder, Aaron Lieberman, said the company bet that Congress would enact legislation allowing private companies to collect a profit based on savings made in the administrative section of Head Start contracts. When that effort failed, Mr. Lieberman, who also founded the education nonprofit Jumpstart, realized it would be difficult to appeal to bigger investors and run Head Start programs nationally.

"People don’t like it when you make money solving complex social problems," he said. "We ran smack into that."

Instead, Mr. Lieberman focused on providing investors with a stable rate of return rather than a splashy Wall Street entrance, and put more resources into consulting for other Head Start organizations rather than running its own programs.

Despite those challenges, participants at the event were confident that impact investing is poised for growth.

About half of investors want their personal values to be reflected in their investment decisions, according to an internal survey conducted this year by Bank of America Merrill Lynch. That finding was presented to the group at Aspen by Surya Kolluri, a managing director at the financial-services giant. Among women and younger adults the number was even higher.

But stressing a social investment’s financial returns, as is often done when trying to attract support, has fallen flat.

"We flipped the script and started with the social problem first," Mr. Kolluri said. "That unpacked a lot of investor enthusiasm."

He added: "If you don’t have this conversation now, you’re going to be toast."

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