The impact investing sector needs both financial and impact benchmarks, and the new study by Cambridge Associates and the GIIN is a positive first step towards defining a private equity benchmark that the industry can adopt to assess financial performance. The journey to create a standard group of benchmarks that are universally accepted and used across the industry, however, is likely to take more time. These inaugural efforts to gather evidence allow investors to justify an allocation to impact investing alongside other more traditional strategies—a fundamental requirement for securing industry credibility and capturing future growth. We hope this study and ensuing debate will catalyse industry stakeholders into recognizing the need for benchmarks covering different asset classes, geographies, and sectors, and how they can be constructed.  

We at AXA Investment Managers manage a EUR €200 million impact portfolio that is diversified across regions, themes, and asset classes. In less than two years we have fully committed this capital to both funds and direct assets, becoming one of the largest allocators in the impact investing space. From this experience we absolutely recognize both the need for an industry standard benchmark, but also clearly see the challenges which exist when trying to create a rational methodology.

The impact universe embraces a relatively new investment philosophy, and an important driver of such a nascent space is the requirement of a “proof of concept.” We face many questions from potential investors regarding whether a trade-off exists when allocating to an impact investment strategy. We see the advent of this benchmark as the first step toward providing more assurance that risk-adjusted market rate returns are feasible in impact investing.  

That being said, before accepting such a benchmark as the market standard, we must also recognize the limitations of such an analysis, and be clear how we will, and will not, apply the benchmark as it exists today.

The impact universe is extremely diverse and is growing rapidly, so naturally identifying an appropriate benchmarking methodology is not a perfect science. We found three limitations to the new benchmark:

  • the small sample size and limited data

  • the comparison of very diverse strategies across the impact spectrum

  • the skew towards certain geographies 

Until further data is available to show disaggregated performance, we would not apply the benchmark during our due diligence, for research purposes, or in performance analysis. We agree with the conclusions of the study which refer to the importance of manager selection and due diligence as critical steps in all aspects of private investing. Impact investing is no different. An institutional body doing fund selection through a multi-strategy approach creates a solid foundation for an impact investing program.

Despite these limitations, we do believe that the Impact Investing Benchmark is extremely useful when promoting impact investing globally and bringing it to the mainstream. We will certainly reference it in marketing materials and when explaining to potential investors and other stakeholders the characteristics of the impact market versus more traditional strategies.  

We have mentioned several times that we see this as the first-step to the market adopting a recognized benchmark. The question then becomes, what are the next steps? The two that come to mind are:

  1. Expand the data set. As stakeholders in the impact investing industry, we must come together and ensure that we are capturing a broader range of funds. This will eventually allow segmentation of the universe into different categories: vintage, sector, geography, strategy, etc. Ultimately we want to be able to measure manager skillset but we will be limited in our ability to do so if the data is skewed by comparing different opportunity sets. As an investor and market participant, our team wants to help improve this study and can contribute by providing data and insights. As industry stakeholders, we should all encourage funds to share their performance data so that the sample size can be increased, allowing more accurate conclusions to be found. 

  2. Widen the coverage. Impact investing exists across asset classes. This study addresses private equity, but the industry should seek the same for private debt and other strategies. Microfinance, for example, already has a benchmark which is very effective.

By creating a transparent methodology, the Impact Investing Benchmark can realistically be adopted by the market as a shared tool. We view this as an ongoing and evolving process that will eventually conclude in defining the most appropriate benchmark. Importantly, market participants, investors, and funds alike will need to be engaged, transparent, and willing to share information in order to secure widespread adoption and support the continued growth of the impact sector. 

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