Thursday, May 7, 2015


Impact investing, impact philanthropy or social benefit investing - the terms are synonymous - are an increasing phenomenon these days. But for donors and donees alike impact giving, whatever the terminology, carries a risk for both sides. On the donor side the return on investment might be lower, riskier and perhaps below the original philanthropic intent. For the donee it might be argued that there is, conceivably, an opportunity cost: i.e. a straight-out contribution, purely philanthropic and not hooked to an investment might be greater.

This was suggested to me by an article in Financial Times May 4th, analyzing the experiences of 82 large investors. Though 27% said social impact exceeded expectations and only 2% reported disappointment, the Global Investment Network and J P Morgan study also said just  over half "were willing to accept sub-market returns as long as they were not negative." Luckily there is a contrary view emerging.

Moral philosopher Peter Singer, the animal liberation contrarian, argues that a young person wanting to do the most good shouldn't necessarily work for a nonprofit, or invest for social impact, but rather find the highest paying  job he can, make as much money as he possibly can, and donate as  much of what he makes as he can. Forget about sub-optimal returns in other words.

Withal impact investing strategy for foundations, fund managers and development finance institutions is still growing very rapidly. Moving this money around in search of some sort of market equilibrium is fee-generating but of course anything serving to enlarge the pot for charity is arguably good.

For most of my clients most of the time (and we serve smaller to medium size nonprofits) any gift is important. But few have the scale to benefit all that much from an impact investment. They can't leverage the funds significantly and leverage is the impact in impact investing. We still find  ourselves driving our clients back to the basics to achieve the greatest impact for any given project:

> Do it right.
> Do it often.
> Evaluate the outcome.

But mainly, ask for the money.