Impact investing is the practice of allocating capital with the explicit intent of creating social benefit, while generating financial return. Ultimately, the impact of an investment is measured as the difference between the relevant outcomes the investment achieves, and what those outcomes would have been without the investment.  For a foundation, “impact” means achieving outcomes that would not otherwise have occurred, “but for” investment in the areas of its concerns.

Private markets have an appeal among foundations and family offices who seek to achieve impact, insofar as investors may pursue higher concentrated ownership and thereby gain greater access to leadership to structure mission-aligned incentives and governance.  Investing for impact includes a broad spectrum of investing practices, wherein a combination of factors, including financial return (and, certain non-financial metrics) are taken into consideration in making investment decisions, managing risk, and harvesting value. The nature of impact investments includes strategies in private debt, real assets, and private equity / venture capital.

Impact investors target financial returns along a spectrum ranging from capital preservation to market-rate; those investors targeting below-market returns are considered concessionary investors.  These are often foundations or high net worth individuals whose primary activity may be making grants to achieve social objectives. Such investors might accept a long-time horizon or assume a subordinate position in the capital structure.  An impact investment offering below market returns may be attractive to such investors if the social good achieved by the investment is sufficiently large.  One example is the program related investment or “PRI” structure increasingly used by foundations.

Philanthropic investments by private foundations are often made as PRIs.  An investment qualifies as a PRI if it furthers the institution’s mission, and the capital outlay can be used to meet the 5% annual spending requirement.  Different forms of PRIs include loans, equity investments, or guarantees, made by a foundation in pursuit of its charitable mission (rather than to generate income).  The recipient can be a nonprofit organization or a for-profit business enterprise.  The US Internal Revenue Code treats PRIs similarly to grants.  In contrast to ordinary investments from their endowments, foundations do not expect PRIs to produce market-rate returns, however, they expect social returns that meet their annual mission requirements.

iCubed supports all participants in the impact investing space, including foundations and family offices in aligning charitable investments with their mission.  Our team has the background and expertise to evaluate and structure private market investments in companies, organizations and funds for the purpose of generating social and environmental impact along with financial return (which can range from below market to above market rates).