Wharton Social Impact Initiative report on the financial performance of impact investing

On October 8th 2015, as members of the impact investing and social entrepreneurship field gathered for the SOCAP event Wharton Social Impact initiative used the opportunity  to launch their first-ever report on the financial performance of impact investing. The report, titled Great Expectations: Mission Preservation and Financial Performance in Impact Investing suggests that investors may not need to expect lesser returns as a tradeoff for social impact. The result of two years rigorous research, the report looks at successful exits from impact investment funds in order to examine the balance between financial returns and mission preservation.

GIIN Report on Scaling Community Development Investments

On October 19th 2015, The Global Impact Investing Network (GIIN), released a landscape study of the US Community Impact Investment field. Titled Scaling U.S. Community Investing: The Investor-Product Interface, the report provides insight into the barriers and opportunities to increasing investment.

In the United States, investments that seeks to generate financial returns while delivering social benefits marginalized communities while have existed for a decades. The investments are executed through a range of actors including loan funds, banks and credit unions, and other financial institutions. Over 900 such product providers are certified as Community Development Finance Institutions (CDFIs) by the U.S. Treasury.

In spite of the wide range of actors involved, the USCI field has not yet managed to scale its potential. The .Scaling U.S. Community Investing report explores why, while providing helpful recommendations for how to engage investors and improving investment products.

Omidyar releases report on early stage risk capital in emerging market

On October 7, 2015, Omidyar Network published a report named “Frontier Capital: Early Stage Investing for Financial Returns and Social Impact in Emerging Markets”. The report offers a strategic guide to how investors can achieve financial returns and social impact through early stage risk capital in emerging markets. Drawing from data analysis and interviews with top investors, report highlights investment opportunities while offering insight to which investment opportunities are best for particular portfolios.

Young firms drive job creation

On September 14th, the Kauffman Foundation published a report titled “The Importance of Young Firms for Economic Growth”,  showing that young and growing companies have accounted for nearly all net new job creation in the economy in the eight years of recovery since the Great Recession. These results mirror past research findings showing that these firms were virtually the exclusive engines of job growth prior to the recession as well. These rapidly-growing companies are precisely the target market of community development venture capital funds, which focus on job-creating growth investments in under-invested urban and rural communities throughout the nation.

Small Impact Investment Funds Outperform Conventional Funds of the Same Size

On June 25, 2015, Cambridge Associates and the Global Impact Investing Network (GIIN) published a report titled “Introducing the Impact Investing Benchmark.” This report contains findings from the first comprehensive analysis of the financial performance of market rate private equity and venture capital impact investing funds. At launch, participants of this Impact Investing Benchmark comprised 51 private investment (PI) funds with social impact objectives.

Notable findings from the report:

Impact investment funds outperform conventional Private Investment funds. Between 1998 and 2004, smaller impact investment funds that raised under $100 million returned a net IRR of 9.5% to investors, outperforming comparative, similar-sized funds that did not focus on impact investments (4.5%). These smaller funds also outperformed larger impact investment funds over $100 million (8.3%) and comparative funds over $100 million (8.3%).

Impact investment funds focused on emerging markets perform better than those in developed markets. Emerging markets (EM) impact investment funds had a return of 9.1% compared to 4.8% for developed markets. EM impact investment funds focused on Africa returned 9.7%.

Impact investment funds are no exception to how important manager selection is to the investment process. Reinforcing manager selection and due diligence are critical in the investment process (especially the first year) for achieving superior returns and in risk management for impact investment funds.

Data is scarce for both the young impact investing industry and the Impact Investing Benchmark; performance will change as new funds are added and older funds mature. The 51 PI funds in the Impact Investing Benchmark held assets of $6.4 billion compared to the $293 billion held by 705 funds in the comparative universe. However, this report marks an important first step in advancing investors’ ability to measure and evaluate impact investment fund performance, which can facilitate the impact industry’s growth.

Read the report >>

State Budgets Overcome Deficits through Major Cuts, But Have No Plans for Reinvestment?

A National Public Radio Broadcast by Greg Allen highlights the bait-and-switch technique of massive budget cuts used only for further tax cuts (Michigan, Ohio), though some states (e.g. Florida) with upcoming gubernatorial elections plan politically strategic investments.

Paul Beck, a professor emeritus of political science at Ohio State University, says that meant less money for schools and local government.

“They were pretty massive cuts,” Beck says. “Local governments and school districts were basically having to tighten their belts considerably. There was a substantial downturn in government jobs in Ohio, particularly at the local level.”

Now that Ohio has a budget surplus, the discussions between Kasich and lawmakers aren’t about restoring spending to schools and local governments. Most of the money is earmarked for tax cuts.

Florida — like many states — is putting much of the surplus into education. After cutting education spending by more than a billion dollars in his first year, Gov. Scott is proposing a $2,500 across-the-board raise for teachers. Scott, by the way, is running for re-election next year.

To read or hear the full article: http://www.npr.org/2013/04/29/179762891/after-belt-tightening-some-states-are-back-in-the-black?ft=3&f=127088100&sc=nl&cc=ph-20130501

Community Development Investment Review Highlights New Social Impact Bonds – “Pay for Success”

Social Impact Bonds (Pay for Success) offer an attractive alternative to the status quo of paying for programs instead of results. Despite our best efforts, the poverty rate today is roughly what it was when the War on Poverty began in 1964. We are winning important battles but losing the war. A new social policy paradigm is needed. Pay for Success financing has the potential to improve the social sector’s effectiveness by rewarding programs that work, encouraging innovation, validating progress, and attracting private capital to the anti-poverty cause. As George Overholser and Caroline Whistler write in the latest issue of The Community Development Investment Review, it would “redirect and refocus our abundant resources, relentlessly, toward the innovations that demonstrate an ever-improving ability to deliver the results our communities need.” Certainly, important questions remain about Pay for Success. Equally important, however, is can we afford to pay for anything less?

For full content: http://www.frbsf.org/publications/community/review/vol9_issue1/index.html

Federal Reserve Bank of San Francisco Releases Brief on Effect of Recession on Low-Income Individuals

Taking a closer look at household balance sheets before and after the recession, Emmons and Noeth find that
younger, minority and less‐educated families suffered the largest wealth losses during the economic crisis.

They use data from the Federal Reserve’s triennial Survey of Consumer Finances (SCF) and find that these households held a large amount of real estate relative to their incomes and total assets, mostly in the form of
a primary residence, and had relatively little owners’ equity in their homes. Declining house prices had a relatively large impact on the net worth of these households, many of which simultaneously experienced job and income losses during the recession.

Similarly, using data fromthe SCF,Grinstein‐Weiss and Key find thatlow‐wealth homeowners
owned relatively few non‐housing assets and were thus deeply exposed to the broad downturn in housing prices
during the recession.

In absolute terms, wealthier homeowners lost more home equity during the housing crisis,
but homeowners with lower initial net worth lost more as a proportion of their total wealth.

These trends at the household level have important macroeconomic implications.

Mian, Rao and Sufi find that poorer and more indebted households reduced their spending much more than their wealthier counterparts in response to declines in housing net worth during the Great Recession.

Similarly, Dynan and Edelberg find thatafter the recession, households that were more indebted were more likely to report cutting back consumption, even after controlling for wealth, income, and other factors that would be expected to influence consumption.

Case, Quigley and Shiller find that changes in housing values exert a larger and more important impact upon
household consumption than do changes in stock market values. These studies suggest that the status of
household balance sheets, particularly the level and composition of household debt, have an influential impact on
aggregate consumption, which has been a factor in the slow economic recovery.

Read the full brief here: http://www.frbsf.org/publications/community/research-briefs/household-net-worth-asset-ownership-among-the-economically-vulnerable.pdf

SBA Innovation Chief Sean Greene becomes Entrepreneur in Residence at the Case Foundation

The Case Foundation announced today that Sean Greene has joined the organization as Entrepreneur in Residence. Having spent more than 20 years as an entrepreneur and investor, Mr. Greene most recently served as Associate Administrator for Investment and Special Advisor for Innovation at the U.S. Small Business Administration (SBA).

At the SBA, Mr. Greene was responsible for both the Small Business Investment Company (SBIC) program, a growth capital program with approximately $18 billion of assets under management, as well as the Small Business Investment Research (SBIR) program, one of the government’s largest innovation programs, which provides over $2 billion of R&D funding to small businesses each year. He also led SBA’s efforts focused on stimulating high-growth entrepreneurship and was one of the key leaders in the Administration’s Startup America initiative.

“Whether creating and supporting initiatives like the Startup America Partnership, or incorporating the spirit of innovation and risk-taking into our work, entrepreneurship is at the heart of everything we do at the Case Foundation,” said Jean Case, CEO of the Case Foundation and an active investor and entrepreneur. “Sean Greene has a thorough understanding of the innovations that happen at the intersections of profit and purpose, and we’re thrilled to have him lend his experience to our work.”

In his role, Mr. Greene will help the Case Foundation evaluate and refine its efforts to revitalize communities by supporting entrepreneurship. Leveraging his experience in launching a $1B impact investing initiative at the SBA, he will join Senior Fellow Sonal Shah playing a key role in the Foundation’s effort to identify new approaches to inspire, educate, and mobilize capital in the impact investing space. Mr. Greene is also advising Revolution LLC, the venture capital firm co-founded by Steve Case, chairman of the Case Foundation.

“Entrepreneurship isn’t just the key to keeping America’s economy running, rather it is the success of entrepreneurs and entrepreneurial values that keep our communities running,” said Mr. Greene. “I am honored to join the Case Foundation, an organization that has long understood the value of applying an entrepreneurial lens to driving social change.”

Prior to joining the SBA, Mr. Greene was the founder and CEO of Away.com, an online travel company that he sold to Orbitz. He was also a co-founder of Rock Creek Ventures and LaunchBox Digital, a seed-stage investment firm in Washington, D.C., and also served as a management consultant with McKinsey and Co. Greene holds an AB from Princeton University, an MBA from Yale’s School of Management, and was a Fulbright Scholar at the National University of Singapore.