Impact investing: financial returns of impact private equity funds

Abstract

The aim of this study was to investigate impact investing within the realm of private equity (PE), an area that has not been thoroughly explored despite its emerging prominence. Specifically, the study sought to shed light on the financial returns and the potential trade-off with social outcomes of impact investing and the factors driving financial returns of impact funds. To achieve this, the research focused on two main objectives: first, to compare the Internal Rate of Return (IRR) of impact funds and non-impact funds, and second, to analyze how variables such as vintage year, fund size, strategy, and geographic focus influence the financial performance of impact funds.

Analyzing data from a total of 3727 funds, the study reveals that while the average IRR of impact funds slightly surpasses that of non-impact funds (0.2375%), there is no statistically significant difference between the IRR of the two categories. In terms of factors influencing impact fund financial returns, the research indicates a notably positive correlation between vintage year and IRR. Additionally, funds focusing on a buyout strategy demonstrate higher returns compared to those targeting early-stage, growth, and other strategies. Furthermore, funds directed capital towards Europe exhibit higher returns compared to those allocating capital to Asia and Emerging markets.