A resurgence in impact-first investing means more investors are thinking about how and where their capital can be most purposeful. It can also be lonely, uncharted work.
A new interactive tool for the impact-first curious aims to reduce the guess-work.
The aptly-named Impact-First Finance Tool from the University of Chicago’s Booth School of Business and the Social Finance Institute allows investors to simulate portfolio allocations and different strategies to better understand how they affect financial and impact returns.
The tool, funded by Lukas Walton’s Builders Vision, builds on efforts by a core group of family offices and foundations to demystify impact-first investing and encourage peers to engage.
To illustrate how it works, the team behind the tool modeled what would happen to a foundation’s $100 million endowment if it shifted 10% into investments that generate measurable social impact with below-market returns. The endowment would decrease slightly. But the foundation’s use of grants and impact-first investments combined with its other assets would deliver greater overall impact than a traditional grants plus investments strategy.
“Even modest allocations to impact-first investing – with plausible assumptions about expected return and impact – can substantially increase the overall social impact of philanthropic assets over any time horizon,” the team says.
Cost / benefit
A report released last week by the Miller Center for Global Impact found that impact-first funds close more deals and spend less on average per deal than comparable market-rate funds. That’s despite the fact that they incur higher costs per dollar deployed.
“The true cost of impact-first investing” analyzed eight organizations managing nearly $200 million committed through 350 investments.
“The higher cost per dollar deployed reflects the price of inclusion, not inefficiency,” the authors explain. Impact-first investors cut relatively small checks and their deals require a greater level of hands-on involvement than traditional asset managers’.
“When structured through impact-first funds, philanthropic and catalytic capital can multiply its effect by derisking enterprises, recycling capital, and enabling durable social and environmental outcomes beyond a single grant cycle,” the authors write.
For example: Clínicas del Azúcar secured $900,000 in catalytic funding, which it used to expand diabetes care in Mexico and the US, reaching more than 500,000 patients. Jibu, a clean water provider in East Africa, used a $1 million grant to fundraise from other investors.
In its own report, “Now more than ever,” early impact-first mover Ceniarth delves into the whats and hows of its allocations.
“It feels as if every year we need to start this letter declaring, ‘impact-first capital is needed now more than ever’,” write Ceniarth’s Diane Isenberg and Greg Neichin.
The family office has deployed more than $300 million in impact-first capital over the past decade, including $63 million it invested through 39 deals last year. Its current impact-first portfolio of $320 million represents 40% of the family office’s assets.
Last year it renewed a credit facility for Acceso, an agricultural lender serving smallholder farmers across Latin America and the Caribbean, when the organization lost more than $4 million in funding when USAID imploded
“We, and other dedicated co-funders, did as much as we could to step into this breach and to give our partners the financing flexibility needed to create business plan breathing room,” Isenberg and Neichin write.
It also invested $1.8 million in Innova Health Supplies, a procurement service created by Fòs Feminista, to help reproductive health organizations in emerging markets affected by donor budget cuts secure contraceptives at bulk pricing. AtoZ Impact, another impact-first family office, also invested in Innova.
Ceniarth’s total impact-first portfolio stands at $320 million, or nearly 40% of its assets.
“We do it for impact,” Isenberg and Neichin say. “Impact comes first because without it, there is no point.”
