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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Should AI Have Access to Your Medical Records? What if It Can Save Many Lives?

We asked readers: Is it worth giving up some potential privacy if the public benefit could be great? Here’s what they said.

By DEMETRIA GALLEGOS
Tue, May 28, 2024 4 min

We’re constantly told that one of the potentially biggest benefits of artificial intelligence is in the area of health. By collecting large amounts of data, AI can create all sorts of drugs for diseases that have been resistant to treatment.

But the price of that could be that we have to share more of our medical information. After all, researchers can’t collect large amounts of data if people aren’t willing to part with that data.

We wanted to see where our readers stand on the balance of privacy versus public-health gains as part of our series on ethical dilemmas created by the advent of AI.

Here are the questions we posed…

AI may be able to discover new medical treatments if it can scan large volumes of health records. Should our personal health records be made available for this purpose, if it has the potential to improve or save millions of lives? How would we guard privacy in that case?

…and some of the answers we received. undefined

Rely on nonpartisan overseers

While my own recent experience with a data breach highlights the importance of robust data security, I recognise the potential for AI to revolutionise healthcare. To ensure privacy, I would be more comfortable if an independent, nonpartisan body—overseen by medical professionals, data-security experts, and citizen representatives—managed a secure database.

Anonymity cuts both ways

Yes. Simply sanitise the health records of any identifying information, which is quite doable. Although there is an argument to be made that AI may discover something that an individual needs or wants to know.

Executive-level oversight

I think we can make AI scanning of health records available with strict privacy controls. Create an AI-CEO position at medical facilities with extreme vetting of that individual before hiring them.

Well worth it

This actually sounds like a very GOOD use of AI. There are several methods for anonymising data which would allow for studies over massive cross-sections of the population without compromising individuals’ privacy. The AI would just be doing the same things meta-studies do now, only faster and maybe better.

Human touch

My concern is that the next generations of doctors will rely more heavily, maybe exclusively, on AI and lose the ability or even the desire to respect the art of medicine which demands one-on-one interaction with a patient for discussion and examination (already a dying skill).

Postmortem

People should be able to sign over rights to their complete “anonymised” health record upon death just as they can sign over rights to their organs. Waiting for death for such access does temporarily slow down the pace of such research, but ultimately will make the research better. Data sets will be more complete, too. Before signing over such rights, however, a person would have to be fully informed on how their relatives’ privacy may also be affected.

Pay me or make it free for all

As long as this is open-source and free, they can use my records. I have a problem with people using my data to make a profit without compensation.

Privacy above all

As a free society, we value freedoms and privacy, often over greater utilitarian benefits that could come. AI does not get any greater right to infringe on that liberty than anything else does.

Opt-in only

You should be able to opt in and choose a plan that protects your privacy.

Privacy doesn’t exist anyway

If it is decided to extend human lives indefinitely, then by all means, scan all health records. As for privacy, there is no such thing. All databases, once established, will eventually, if not immediately, be accessed or hacked by both the good and bad guys.

The data’s already out there

I think it should be made available. We already sign our rights for information over to large insurance companies. Making health records in the aggregate available for helping AI spot potential ways to improve medical care makes sense to me.

Overarching benefit

Of course they should be made available. Privacy is no serious concern when the benefits are so huge for so many.

Compensation for breakthroughs

We should be given the choice to release our records and compensated if our particular genome creates a pathway to treatment and medications.

Too risky

I like the idea of improving healthcare by accessing health records. However, as great as that potential is, the risks outweigh it. Access to the information would not be controlled. Too many would see personal opportunity in it for personal gain.

Nothing personal

The personal info should never be available to anyone who is not specifically authorised by the patient to have it. Medical information can be used to deny people employment or licenses!

No guarantee, but go ahead

This should be allowed on an anonymous basis, without question. But how to provide that anonymity?

Anonymously isolating the information is probably easy, but that information probably contains enough information to identify you if someone had access to the data and was strongly motivated. So the answer lies in restricting access to the raw data to trusted individuals.

Take my records, please

As a person with multiple medical conditions taking 28 medications a day, I highly endorse the use of my records. It is an area where I have found AI particularly valuable. With no medical educational background, I find it very helpful when AI describes in layman’s terms both my conditions and medications. In one instance, while interpreting a CT scan, AI noted a growth on my kidney that looked suspiciously like cancer and had not been disclosed to me by any of the four doctors examining the chart.

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