Wealth has never been so concentrated in the United States as it is today. Meanwhile, families find it increasingly difficult to climb the ladder of prosperity—32 million children live in low-income families, and one in four live in poverty. This disparity points to an urgent need to enlist all sectors in breaking the cycle of poverty.
With that in mind, Ascend at the Aspen Institute took an in-depth look at the field of impact investing as one tool that could help advance economic mobility for families. We designed our survey and resulting report to explore the landscape of this growing field in the United States, with a focus on deal flow and returns. We did not set out to complete a comprehensive state of the field survey, but instead to understand how the investments of active investors could help build economic security for families.
So what did we learn?
- A majority of respondents are investing in target areas that support low-income families and those most in need. Nearly 69 percent of respondents invest in the study’s target impact areas of education, economic assets, and health and well-being.
- For these respondents, impact investing is not a new practice. Sixty-four percent indicated that they have been active impact investors for more than 10 years.
- Significant dollars are supporting strategies to build mobility. Investors have committed more than $2.5 billion to advancing economic mobility for families.
- Good deals do exist. Forty-five percent of those investing in the study’s target areas establish formal financial and social benchmarks. Of those, 80 percent said their portfolios are meeting or exceeding the financial targets they set for themselves, and 90 percent are meeting or exceeding their social objectives.
- The pipeline for investments is based on social capital. As with venture capital, a majority of impact investors find deal flow from peers and other investors. In fact, 52 percent of respondents noted that personal networks were critical in advancing their impact agenda; 29 percent of respondents use professional networks, and 10 percent use intermediaries.
- An overwhelming majority has a commitment to reducing poverty. Of those investing in economic mobility, 86 percent have an institutional commitment to addressing poverty. Furthermore, 32 percent reported employing a gender lens in the investment decision process, while 27 percent reported having a racial equity lens.
Ascend continues to focus on education, economic assets, and health—three of the most powerful levers for fighting poverty—and we paid particular attention to these areas in our survey.
We know, for example, that higher levels of education translate to higher incomes. People with associate degrees earn 1.5 times more than peers who have only high school degrees, and a college degree doubles an adult’s income. At the same time, investments in high-quality early childhood education yield a 7-10 percent annual return through increased school and career achievement, and reduced social costs.
Given the importance of education, what lessons do impact investments in education teach us? Our three guiding research questions (which we used for all three areas covered in the survey) helped us explore this:
1. What is the current level of investment activity and interest in the United States related to education, economic assets, and health and well-being?
In education, the majority of investments are in early childhood through 12th grade.
2. What tools, strategies, and models we distill from early investments that could lead to better results for children and families?
As education is largely a government-financed activity, investments have to fit within that context. Acelero Learning—a for-profit pre-school program that serves 5,000 children and contracts with Head Start in Las Vegas, New Jersey, Philadelphia, and Milwaukee—is an example of an investment that is working. Started almost a decade ago in Harlem, Acelero raised $4 million to do a better job at what Head Start is designed to do: give disadvantaged kids improved opportunities for success.
Acelero brings a private-sector emphasis on operational efficiency, data, and high-performance to its work for children; it tracks 30 progress indicators. It offers improved product/service delivery at a lower cost than currently subsidized programs, and generates improved outcomes for young people, particularly those most at risk. In fact, children in Acelero programs have achieved 50 percent higher gains year to year on standardized tests compared to those in other Head Start programs.
Investments in First Book, a nonprofit that supplies books that reflect the diversity of students so that children can recognize themselves in what they read—are also working. Through partnerships with publishers, it has provided more than 18 million books to schools and children’s programs since 1992. In the process, First Book has built an effective business model with sustainable revenue, attracted investors, and increased its social impact. It has also demonstrated that it can change markets through dollars, not just advocacy.
3. How can we effectively share strategies with on-the-ground innovators, foundations, policy makers, and impact investors?
The report offers insights for investors, practitioners, and policymakers into investments in early childhood, K-12 education, technology, literacy, and postsecondary education.
Three opportunities in the field include:
- Investing beyond school infrastructure to broader educational outcomes. A broader outcomes focus disperses investor risk, and increases the availability and quality of ancillary services that are often critical to the long-term success of students, particularly those from low-income families.
- Focusing on quality and efficiency. Investments like the pay-for-success initiative in Utah demonstrate that existing interventions, when scaled, generate greater educational outcomes.
- Leveraging intermediaries to deploy large amounts of capital effectively. The use of skilled intermediary organizations that are experienced in both the education sector and impact investing (such as the Institute for Child Success or the Center for Employment Opportunities) reduces transaction costs and increases the likelihood of success because it engages sector experts.
The report also includes information about trends among active and emerging players in US impact investment, and lessons we can apply to economic mobility; essays by thought leaders such as FB Heron Foundation’s Clara Miller, Morgan Stanley’s Audrey Choi, and First Book’s Kyle Zimmer and Jane Robinson; case studies; and snapshots of deals by impact investors such Kresge Foundation, MacArthur Foundation, and Living Cities.
Impact investing is not a silver bullet, but it does hold the promise of helping more people realize the American dream. We invite you to review our findings in “The Bottom Line: Investing for Impact on Economic Mobility in the United States,” and let us know what you think.