Private market impact fund performance akin to venture capital

Private market impact funds perform on par with traditional venture capital returns, a new academic study has found.

A new paper from HEC Paris found that impact funds in private markets offer reduced market risk exposure compared to than traditional venture capital or private equity funds.

The paper, titled “The Risk and Return of Impact Investing Funds”, was co-authored by Jessica Jeffers of HEC Paris, Tianshu Lyu of Yale School of Management and Kelly Posenau of Cornell University.

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The authors built a new dataset of impact investing fund cash flows using data from the Impact Finance Research Consortium (IFRC) and Preqin, covering 94 funds with cash flow data from 1999 to 2021. They then compared impact investing funds to non-impact private market funds, matched by vintage, asset class, and size, and to venture capital funds.

The comparison showed that impact funds have lower market exposure than the two benchmarks, suggesting that incorporating impact funds into investment portfolios can reduce market risk exposure compared to traditional venture capital or private equity funds.

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“By providing a clear picture of the risk properties associated with these funds, we hope to empower investors to make more informed decisions that align with their financial and social objectives,” said Jeffers.

The report concluded that impact funds have comparable performance to similar nonimpact funds when adjusted for market risk, making them a potentially attractive option for investors who are seeking both financial returns and social or environmental impact.

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