The Risk and Return of Impact Investing Funds

(with Jessica Jeffers and Kelly Posenau), March 2021

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 directly from financial statements. When accounting for market risk exposure, impact funds underperform the market by $0.30 on the dollar, but outperform venture capital (VC) funds by $0.15 on the dollar, consistent with the presence of substantial frictions in private markets. Impact funds perform on par with funds matched on size, asset class, and vintage years. 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." Adding additional factors does not change the estimate of performance.