has partnered with the KL Felicitas Foundation in producing a
report entitled Evolution of an Impact Portfolio: From
Implementation to Results, which details the financial performance of the foundation’s
The report finds
that impact investments can compete with - and at times outperform - traditional
asset class strategies while pursuing “meaningful and measurable social and
environmental results.” (Sonen describes impact investing as “investing
with the intent to generate both financial returns and purposeful, measurable,
positive social or environmental impact.”)
The firm considers 38 of the underlying investments in KLF’s
which accounted for $37.2 billion of assets under management. It concludes that
the “impact sector likely holds significantly larger absorptive capacity.”
The executive summary begins by explaining how the KL
Foundation in 2004 launched an initiative that would eventually allocate all
the foundation’s capital to so-called impact investments.
The foundation’s “experiment,” the report outlines,
has helped reshape the investment landscape; between 2006 and 2012 the foundation moved from 2 per cent
of assets allocated
to impact to over 85 per cent,
while also achieving index-competitive, risk-adjusted returns.
Sonen said the
report reveals several key findings, touching on the areas of “investment
size and options,” “impact alpha” and “diversification.”
The former section argues that a risk-aware portfolio approach to
impact investing can
be implemented across a range of portfolio sizes, as new options in the impact
marketplace allow investors to pursue numerous financial and impact goals
through public and private strategies.
alpha looks at how positive
impacts generated by an “impact portfolio” exist in several forms. An impact
investment strategy may also yield portfolio advantages, including reducing
overall portfolio volatility or seizing opportunities to capture alpha through
market inefficiencies, and by capitalizing on long-term social and
report then looks at the role of diversification and how the firm’s data suggest that impact
investments can address needs across a range of impact opportunities and
financial goals. Impact investments could also offer investors less correlated
exposures which improve social and environmental conditions at local, regional
and global levels, it says.
report details the performance of the Return-Based
Impact Portfolio created
by KLF, and more specifically those investments with so-called ‘reportable’
performance (i.e., performance that can be marked to market on a regular
basis),” Sonen said.
The report also
shows the performance of each reportable return-based impact asset class, compared
to traditional benchmarks. The firm believes the results demonstrate that
impact investments can compete with traditional investment strategies.