Overview

The private debt, equity, and real asset classes overall have seen strong financial performance, meeting or exceeding market expectations. Investors reported various types of perceived risks, with the largest share reporting ‘business model execution and management risk’ and ‘liquidity and exit risk’.

Decision-making in impact investing

The report notes that an investor’s primary goal is to achieve market-rate financial returns while producing social and environmental impacts. It presents insights from various organisations on areas such as financial return and impact objectives, risk tolerance, capacity, and liquidity constraints.

Private equity: Financial performance

This section includes insights from three important publications on the financial performance of private equity investments. It highlights high variances in financial returns and performance, significance of investors’ objectives on financial performance and high performance of smaller funds.

Private debt: Financial performance

This section explains common benchmarks used by private debt impact investors. It also explores two research reports on Private Debt Impact Funds (PDIFs), highlighting the risk-adjusted market-rate returns generated by PDIFs. It also emphasises the importance of these funds in risk reduction and diversification.

Real assets: Financial performance

This section defines common benchmarks used by real assets impact investors and shares insights from Cambridge Associates’ benchmark study. It shows real assets impact funds’ financial performance has been less consistent overall than private debt and equity funds.

Role of financial performance data from analogous markets

This report highlights how impact investors often draw upon similar investment approaches and financial benchmarks from ESG, sustainable, and responsible investing, potentially due to insufficient data on the financial performance of impact investments. The report also notes that these analogous markets lack rigorous impact measurement and management practices.

Conclusion and next steps

The report concludes that the financial performance of impact investments in private equity, private debt, and real assets generally meets or exceeds investors’ expectations.  It also shows, market-rate returns can be achieved by impact investors. However, financial performance varies significantly based on asset class and the objectives of the investors.

It suggests that maximizing both financial and impact outcomes will require a rigorous practice of disclosure and data-sharing by impact investors and a nuanced understanding of decision-making across various aspects such as risk, liquidity, and performance objectives.