Future Returns: How Impact Investors Balance Objectives
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Future Returns: How Impact Investors Balance Objectives

By Abby Schulz
Wed, Jan 20, 2021 6:41amGrey Clock 4 min

Impact investors aim to achieve specific, positive social or environmental goals such as creating more affordable housing, or reducing reliance on fossil fuels, but they do so to earn market returns too, while weighing other standard investment considerations such as risk and liquidity.

That’s a key finding of “Impact Investing Decision-Making: Insights on Financial Performance,” a report published last week by the Global Impact Investing Network (GIIN) that assesses investor attitudes toward financial performance based on outstanding studies by outside firms and an analysis of financial performance that was gleaned from its annual survey of impact investors.

“What’s important here, and what we’re delighted about, is that financial performance is an important consideration for impact investors, but they are really looking at it taking into account a number of considerations,” says Dean Hand, director of research at the GIIN.

To weigh impact alongside performance is not unusual in the sense that traditional market investors also weigh a number of things. Risk and return, for instance, are factors commonly taken into consideration in balance with one another.

To invest in an emerging market company might lead to higher returns than a similar investment in a U.S. firm, but it’s riskier, bearing a higher potential of falling apart, so investors have to decide how much risk they are willing to stomach to get the returns they want.

The GIIN’s survey results have shown that impact investors generally get the balance they are seeking—nearly 88% in the most recent survey say that their portfolios meet or exceed their expectations for returns.

But when investors care about creating a positive social or environmental impact, they also weigh traditional investment considerations, such as liquidity—do they need their investment cash back soon or can they wait? If the latter, an investor may be more willing to invest in a private equity fund with a longer time horizon, and a different set of impact outcomes than might be available via a green bond, for instance.

If they are a more conservative investor, too, not willing to shoulder a lot of risk—a highly rated green bond may be just the thing.

The Importance of Manager Selection

The GIIN’s report looked at how impact investments in private markets have performed, culling data from available research by groups such as Cambridge Associates and Symbiotics as well as its own investor survey.

Private-equity impact investments, for instance, can deliver high returns, outperforming the S&P 500 index by 15%, according to a study by the International Finance Corp., although a University of California study found the median impact fund had an internal rate of return (IRR) of 6.4% compared with 7.4% for the median “impact-agnostic” fund.

And results can vary widely. The GIIN’s survey data showed that the top 10% of private-equity portfolios in emerging markets had realized returns of more than 29% while the bottom 10% had returns below 6%.

As a result, the GIIN finds that fund manager selection matters, not just in terms of quality, Hand says, but in helping the investor understand “whether or not they are achieving what they want both in terms of financial performance and impact performance.”

Investors also have to ask the right questions, Hand says. For example, it’s important to ask questions like: What specific impact results a manager is getting? How are those results measured? How do you convey this information to investors?

Where these have been successful, particularly in impact investing, is where the AO and AM work together to derive what results they are looking for, what their objectives are, and how they are going to report on those results.

“Good asset-owner and asset-manager relationships are built on a close working relationship,” Hand says. “Where these have been successful, particularly in impact investing, is where the asset owner and asset manager work together to derive what results they are looking for, what their objectives are, and how they are going to report on those results.”

Performance in Private Debt, Real Assets

According to the report, private debt funds focused on impact have tended to provide low-risk returns, as most investors expect, while delivering stability as well as diversification to impact portfolios.

The GIIN survey data showed average returns for impact debt funds ranged from 8% for developed market funds to 11% for emerging market funds, while Symbiotics data found a weighted average yield of 7.6% for fixed-income impact funds, the report said.

Investing in real assets, such as real estate and timberland, can lead to good returns, but the results vary widely depending on the time horizon as well as the type of investment, the report found. Investors surveyed by the GIIN reported returns ranging from 8% to 23%—again, pointing to the need for investors to select the right asset managers.

Case Studies

To give a sense of how experienced impact investors balance all these factors, the report offers examples from five experienced impact investors.

IDP Foundation, a private nonprofit focused on access to education and poverty alleviation, invests for impact from its endowment as well as through program-related investments. The foundation cares about achieving high impact but also competitive, market-rate financial returns.

The GIIN looked at five major factors the foundation weighs before deciding on an investment: financial return objectives, impact objectives, financial risk, impact risk, resource capacity, and liquidity constraints.

It turns out IDP considers its financial return and impact objectives to be “very important,” while financial risk—or the volatility of expected returns—and impact risk are “important.” The foundation’s resource capacity is less important, as it leans on a consulting firm as an advisor, and screen service to make sure it doesn’t invest in anything that violates its impact goals.

“What we hope by these spotlights is that it will give investors an idea of how those things are actually playing out so they can match that in their own decision making,” Hand says.



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I.M. Pei was the confident visionary behind such transformative structures as the Bank of China Tower in Hong Kong and the Louvre Pyramid in Paris, but he was also humble, and for years resisted a retrospective of his work.

Pei, a Chinese-American architect who died in 2019 at 102 , would always protest any suggestion of a major exhibition, saying, “why me,” noting, too, that he was still actively at work, recalls his youngest son, Li Chung “Sandi” Pei. A decade ago, when Pei was in his mid-to-late 90s, he relented, finally telling Aric Chen, a curator at the M+ museum in Hong Kong, “all right, if you want to do it, go ahead,” Sandi says.

A sweeping retrospective, “I.M. Pei: Life Is Architecture,” will open June 29 at M+ in the city’s West Kowloon Cultural District. The exhibition of more than 300 objects, including drawings, architectural models, photographs, films, and other archival documents, will feature Pei’s influential structures, but in dialogue with his “social, cultural, and biographical trajectories, showing architecture and life to be inseparable,” the museum said in a news release.

As a Chinese citizen who moved to the U.S. in 1935 to learn architecture, Pei—whose full first name was Ieoh Ming—brought a unique cultural perspective to his work.

“His life is what’s really interesting and separates him from many other architects,” Sandi says. “He brought with him so many sensibilities, cultural connections to China, and yet he was a man of America, the West.”

Facade of the Bank of China Tower in Hong Kong in a photograph commissioned by M+ in 2021.
© South Ho Siu Nam

Pei’s architectural work was significant particularly because of its emphasis on cultural institutions—from the East Building of the National Gallery of Art in Washington, D.C., to the Museum of Islamic Art in Doha, Qatar—“buildings that have a major impact in their communities,” Sandi says. But he also did several urban redevelopment projects, including Kips Bay Towers in Manhattan and Society Hill in Philadelphia.

“These are all places for people,” Sandi says. “He believed in the importance of architecture as a way to bring and celebrate life. Whether it was a housing development or museum or a tall building or whatever—he really felt a responsibility to try to bring something to wherever he was working that would uplift people.”

A critical juncture in Pei’s career was 1948, when he was recruited from the Harvard Graduate School of Design (where he received a master’s degree in architecture) by New York real estate developer William Zeckendorf.

With Zeckendorf, Pei traveled across the country, meeting politicians and other “movers and shakers” from Denver and Los Angeles, to Philadelphia, Washington D.C., Boston, and New York. “He became very adept at working in that environment, where you had to know how to persuade people,” Sandi says.

During the seven-year period Pei worked with Zeckendorf, the developer fostered the growth of his architecture practice, supporting an office that included urban, industrial, graphic, and interior designers, in addition to architects and other specialists, Sandi says.

When Pei started his own practice in 1955, “he had this wealth of a firm that could do anything almost anywhere,” Sandi says. “It was an incredible springboard for what became his own practice, which had no parallel in the profession.”

According to Sandi, Chinese culture, traditions, and art were inherent to his father’s life as he grew up, and “he brought that sensibility when he came into America and it always influenced his work.” This largely showed up in the way he thought of architecture as a “play of solids and voids,” or buildings and landscape.

“He always felt that they worked together in tandem—you can’t separate one from the other—and both of them are influenced by the play of light,” Sandi says.

View of the National Center for Atmospheric Research, on the mesa, in a photograph commissioned by M+ in 2021.
© Naho Kubota

Pei also often said that “architecture follows art,” and was particularly influenced by cubism, an artistic movement exploring time and space that was practiced in the early 20th century by Pablo Picasso, Georges Braque, and the sculptor Jacques Lipchitz, among others. This influence is apparent in the laboratory at the National Center for Atmospheric Research in Boulder, Colo., and at the Everson Museum of Art in Syracuse, N.Y. “Those two buildings, if you look at them, have a play of solid and void, which are very cubistic,” Sandi says.

Yet Sandi argues that his father didn’t have a specific architectural style. Geometry may have been a consistent feature to his work, but his projects always were designed in response to their intended site. The resulting structure emerged as almost inevitable, he says. “It just was the right solution.”

Pei also intended his buildings “not only to be themselves a magnet for life,” but also to influence the area where they existed. “He never felt that a building stood alone,” Sandi says. “Urban design, urban planning, was a very important part of his approach to architecture, always.”

After he closed his own firm to supposedly “retire” in the early 1990s, Pei worked alongside Sandi and his older brother, Chien Chung (Didi) Pei, who died late last year, at PEI Architects, formerly Pei Partnership Architects. Pei would work on his own projects, with their assistance, and would guide his sons, too. The firm had substantial involvement in the Museum of Islamic Art, among other initiatives, for instance, Sandi says.

Working with his father was fun, he says. In starting a project, Pei was often deliberately vague about his intentions. The structure would coalesce “through a process of dialogue and sketches and sometimes just having lunch over a bottle of wine,” Sandi says. “He was able to draw from each of us who was working on the project our best efforts to help to guide [it] to some kind of form.”

The M+ retrospective, which will run through Jan. 5, is divided into six areas of focus, from Pei’s upbringing and education through to his work in real estate and urban redevelopment, art and civic projects, to how he reinterpreted history through design.

Sandi, who will participate in a free public discussion moderated by exhibition co-curator Shirley Surya on the day it opens, is interested “in the opportunity to look at my father anew and to see his work in a different light now that it’s over, his last buildings are complete. You can take a full assessment of his career.”

And, he says, “I’m excited for other people to become familiar with his life.”