New Research From Tideline And Impact Capital Managers Finds The "Alpha" In Impact Investing

Investors Can Pursue Societal and Financial Value Simultaneously

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Dec 12, 2018, 07:04 ET

NEW YORK, Dec. 12, 2018 /PRNewswire/ -- New research from Tideline, an impact investing consulting firm, in partnership with Impact Capital Managers (ICM), a network of private fund managers committed to impact investing, shows that a social and environmental focus on investment management can, in fact, boost financial returns.

The new white paper, titled The Alpha in Impact, is based on Tideline's analysis of nearly 30 financial transactions from ICM-member investment portfolios. The analysis uncovered 10 unique drivers of "impact alpha," defined as the ways in which operating with an impact objective can enhance or add financial value for fund managers, investors, and the firms in which they invest.

"Since impact investing emerged as a standalone term more than a decade ago, there has been vigorous debate as to whether investors can pursue market-rate, risk-adjusted financial returns and positive societal impact as parallel objectives," said Ben Thornley, a managing partner at Tideline and an author of the report. "We worked with ICM to test that theory, and our analysis found many case studies of fund managers achieving strong returns by investing in firms that have a positive effect on society."

Tideline organized the 10 drivers of impact alpha around three core areas of responsible fund management:

Accessing unique and high-quality investment opportunities. Impact investment managers can leverage impact-focused networks, relationships, and expertise to unlock unique and high-quality investment opportunities—potentially achieving more attractive terms at entry.
Creating value across the portfolio. Impact investment managers bring market insights and networks that help to design more effective businesses, build authentic brands, and attract differentiated sources of talent and capital—potentially driving higher returns, lowering the cost of capital for investees, and reducing operating costs.
Strengthening outcomes through operational rigor and risk management. By focusing on social and environmental outcomes throughout the investment process—integrated with business results—impact investment managers bring additional rigor and discipline to operations, stakeholder engagement, and risk management, helping to lower the volatility of revenues, mitigate business risks, and strengthen returns.

Tideline interviewed 13 U.S.-based ICM member fund managers, with combined assets under management of $4 billion, to support its analysis of nearly 30 individual transactions. The interviews focused on more sharply defining the drivers of impact alpha and surfacing evidence of those drivers in action within each manager's experience and portfolio.

In one case study, Impact America Fund (IAF) invested $2.25 million in Mayvenn, an Oakland, Calif.-based e-commerce platform for independent hairstylists, primarily women of color who are microbusiness owners. In three years, revenues rose five-fold and last month, Mayvenn completed a $23 million Series B funding round led by Essence Ventures.¹

Mayvenn was founded by Diishan Imira when he began selling hair extensions out of the trunk of his car. By offering stylists a commission for selling and affixing Mayvenn products, the company has grown to a network of 50,000 stylists who have earned $20 million in commissions.

"Our relationship with Diishan began with a shared commitment to create economic mobility for low-income hairstylists who are trusted experts in their communities," said Kesha Cash, founder and general partner of IAF. "Early on, we worked with Mayvenn to better understand the stylists on the platform and think through how to scale the business to have a lasting impact for communities of color. Mayvenn stylists are economically empowered and use their skills to generate more income in a way they hadn't before."

Impact investments seek to achieve measurable social or environmental impact alongside financial returns. According to a survey by the Global Impact Investment Network (GIIN), there were at least $228 billion in impact investing assets under management in 2018.²

Participants in Tideline's research included Arborview Capital, Bain Capital Double Impact, Bridges Fund Management, Community Investment Management, DBL Partners, Global Environment Fund, Impact America Fund, JANA Partners, New Markets Venture Partners, Rethink VC, SJF Ventures, The Rise Fund, and University Ventures.

About Tideline
Tideline is a consulting firm that provides tailored advice to clients developing impact investing strategies, products, and solutions. Founded in 2014, Tideline provides a wide range of advisory services, including business and investment strategy design, product development, due diligence, customized research, and impact management. Clients include large institutional foundations, large wealth management firms, family offices, mainstream investment managers, community and international development finance institutions, and non-governmental organizations. For more information, see the firm's website.

About Impact Capital Managers
Impact Capital Managers is a network of private capital fund managers in North America, deeply committed to impact investing. Representing more than $8 billion in impact-focused capital, ICM members seek to deliver superior financial returns and measurable impact as a core part of their investment strategies. The network was launched in April 2018 with the goals of fostering the growth of market-rate impact investing through the sharing of best practices, promoting a diverse talent pipeline, and developing thought leadership for a broad group of stakeholders. Please see www.impactcapitalmanagers.com for a list of members.

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