Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis

CHAPTER 7

Impact Investing Funds

As social entrepreneurship and investing with a strong social purpose gain popularity, many nonprofessional investors and non–impact funds want to direct their money toward such investments. Those interested can be as diverse as high-net-worth individuals who want to devote part of their wealth to social impact, retail investors who want to see an allocation of their money in similar assets, or even government bodies looking to generate positive social return with their funding. As this book has shown thus far, making just one of these investments on a professional level can be a meticulous ordeal requiring a rigorous investment process. This may work if the investor wants to place a few million dollars, but the amount of interest in impact investing and the capital available far exceeds an individual's investing capability.

To address this gap in the market, funds have been created over the years that specialize in channeling investor money into direct-impact investments. Many of the entities that have emerged though are unique in the investing world as their funding sources and investment theses stray significantly from a traditional investment fund. We have touched on some of these particular challenges in the context of the individual investor, such as how an investor's cost of equity can filter through varying levels of valuation comfort, but the issues intensify on a fund level.

Understanding these difficulties is best done with a solid base ...