The Risk and Return of Impact Investing Funds

64 Pages Posted: 26 Oct 2021 Last revised: 11 Nov 2021

See all articles by Jessica Jeffers

Jessica Jeffers

University of Chicago - Booth School of Business

Tianshu Lyu

Yale School of Management

Kelly Posenau

Cornell University - SC Johnson Graduate School of Business

Date Written: November 7, 2021

Abstract

We provide the first analysis of the risk exposure and consequent risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a new dataset of impact fund cash flows constructed from financial statements. When accounting for market risk exposure, impact funds underperform the market, though not more so that comparable private market strategies. We exploit known distortions in measures of VC performance to characterize the risk profile of impact funds. Impact funds have substantially lower market beta than VC funds, contradicting the idea of sustainability as a “luxury good.” We find that impact fund cash flows do not exhibit positive correlation with a public market sustainability factor, consistent with the idea that private and public market sustainability strategies capture distinct exposures.

Keywords: impact investing, private equity, venture capital

JEL Classification: G11, G24, H41, M14

Suggested Citation

Jeffers, Jessica and Lyu, Tianshu and Posenau, Kelly, The Risk and Return of Impact Investing Funds (November 7, 2021). Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3949530 or http://dx.doi.org/10.2139/ssrn.3949530

Jessica Jeffers (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Tianshu Lyu

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

Kelly Posenau

Cornell University - SC Johnson Graduate School of Business ( email )

Ithaca, NY 14850
United States

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