Beats | April 18, 2018

Impact investing through private debt: low but stable returns

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, April 17 –  Private equity and venture capital often get the glory, but private debt and fixed-income instruments do the heavy lifting in impact investing.

Such debt funds account for one-third of impact investor assets under management, making them the largest asset class in impact investing.

A new analysis from Symbiotic and the Global Impact Investing Network looks at the performance of 50 private debt impact funds and 102 community development loan funds. The takeaway: impact investing through private debt offers relatively low but stable returns.

  • Top line numbers… The 90th percentile of private debt impact funds returned an average 10% in 2016. Returns across the private debt impact funds averaged 2.6% per year since 2012.
  • Risk-adjusted… The private debt impact funds have a “Sharpe ratio” of risk-adjusted performance of 0.77, which “compares favorably to other traditionally stable asset classes,” according to the researchers.
  • Debt funds outperformed… the three-month US dollar LIBOR interest rate by more than five-fold, with almost equal volatility.

Investors most often use private debt to drive financial inclusion, employment generation, entrepreneurship, affordable housing and food security. Dig deeper with the pocket guide to impact investing financial performance.