THE FINANCIAL PERFORMANCE OF IMPACT INVESTING

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THE FINANCIALPERFORMANCE OFIMPACT INVESTINGTHROUGHPRIVATE DEBTAPRIL 2018

Legal Disclaimer This paper contains only general information. Neither Symbiotics nor GIIN is by means of this paper rendering professional advice or services.The content of this paper is meant for research purposes, with an aim to broaden and deepen the understanding of Private Debt Impact Funds. On a few occasions,this paper refers to specific asset managers and collective investment schemes. Such references are made for research purposes only and are not intended as asolicitation or recommendation to buy or sell any specific investment product or services. Similarly, the information and opinions expressed in the text were obtainedfrom audited financial statements in addition to self-reporting sources believed to be reliable and reporting in good faith, reflecting the view of the authors on thestate of the industry, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Before making any decision or taking anyaction that may affect your finances or your business, you should consult a qualified professional adviser. Neither Symbiotics nor GIIN shall be responsible for anyloss whatsoever sustained by any person who relies on this paper. The paper is also meant for distribution only under such circumstances as may be permitted byapplicable law. 01.0318

.Authoredby:SYMBIOTICS RESEARCH TEAMMarina Parashkevova Holmegaard, Research Team LeaderRamkumar Narayanan, Markets & Institutions AnalystBasile Quartier, Impact Fund AnalystGIIN RESEARCH TEAMAbhilash Mudaliar, Research DirectorHannah Schiff, Research ManagerRachel Bass, Research Senior AssociateACKNOWLEDGEMENTSThe following members of the Symbiotics and GIIN Teams also provided input:Roland Dominicé, SymbioticsDavid Grimaud, SymbioticsYannis Berthouzoz, SymbioticsAmit Bouri, Global Impact Investing NetworkGiselle Leung, Global Impact Investing NetworkJennifer Lawrence, Global Impact Investing NetworkResearch supportWe gratefully acknowledge the support and input of the external advisory body for this study:Hewson Baltzell, HeLiOS ExchangeGuillaume Bonnel, Lombard OdierJeff Brenner, Impact Community CapitalJacob Haar, Community Investment ManagementMichael Hokenson, Community Investment ManagementThomas Hofer, MicroVest Capital ManagementOutreach partnersWe thank Donna Fabiani, Lance Loethen and Fran Lutz from Opportunity Finance Network for their inputthroughout the process and support in outreach to Community Development Loan Funds.Proofing & DesignThe report was proofread by David Richmond and designed by James Atkins Limited. Additional datacollection and layout support was provided by Sylvie Somerville.SUPPORTERSThis report was produced with the generous support of the John D. and Catherine T. MacArthurFoundation, JPMorgan Chase & Co., and the W.K. Kellogg Foundation.1

CONTENTSINDEX OF FIGURES4INDEX OF TABLES6ACRONYMS7FOREWORD9EXECUTIVE SUMMARY101. MOTIVATION AND BACKGROUD1.1 Methodology13142.2.12.22.32.42.52.62.72.8PRIVATE DEBT IMPACT FUNDSBusiness ModelSample SnapshotAsset SizePortfolio and Investor CharacteristicsFinancial Performance BreakdownPortfolio RiskImpact MeasurementImpact .8COMMUNITY DEVELOPMENT LOAN FUNDSBusiness ModelSample SnapshotAsset SizePortfolio and Investor CharacteristicsFinancial Performance BreakdownPortfolio RiskImpact MeasurementImpact PENDICESMethodologySample Snapshot, Other MetricsList of Respondents636370723

INDEX OF FIGURESPRIVATE DEBT IMPACT FUNDS1 Assets Under Management, Distribution of Sample2 Average Assets Under Management by Sector3 Age of Funds4 Total Assets by Sector5 Total Assets by Size6 Number of Funds by Size7 Portfolio Size, Distribution of Sample8 Portfolio Maturity by Fund Size9 Portfolio Maturity by Sector10 Geographical Breakdown of Total Portfolio by Main Investment Sector11 Investor Type by Volume of Total Equity and Notes12 Financial Performance Breakdown, Risk-Adjusted, Market-Rate Funds13 Financial Performance Breakdown, Below-Market-Rate Funds14 Average Net Returns by Return Philosophy15 Average Net Returns by Hedging Strategy16 Average Net Returns of Levered and Unlevered Funds17 Interest on Debt18 Average Net Returns by Main Investment Sector19 Net Return Spread over Three-Month Libor USD20 Total Income21 Average Portfolio Yield of Funds, Unlevered Versus Levered22 Average Fund Cost Structure23 Distribution of Expected Total Expense Ratio24 Loss Provisions Outstanding by Fund Size25 Loss Provisions Outstanding by Hedging Strategy26 Write-offs by Fund Size27 Impact Themes by Main Investment Sector28 Impact Metrics by Main Investment 5353636363738

COMMUNITY DEVELOPMENT LOAN FUNDS29 Assets Under Management, Distribution of Sample30 Age of Funds31 Total Assets by Sector32 Loan Portfolio, Distribution of Sample33 Portfolio Maturity by Sector34 Portfolio Maturity by Size35 Investor Type as a Percentage of Notes and Lines of Credit36 Average Interest Rates on Notes37 Interest Rates on Notes by Sector38 Interest Rates on Notes by Size39 Average Portfolio Yield40 Portfolio Yield by Sector41 Portfolio Yield by Size42 Sources of Fund Income43 Average Grants and Contributions44 Components of Total Expense Ratio45 Average Total Expense Ratio by Size46 Average Total Expense Ratio by Sector47 Loss Provisions Outstanding by Size48 Write-Offs by Size49 Sectoral Activity by Main Investment Sector50 Impact Themes by Main Investment Sector51 Impact 9595

INDEX OF TABLESMETHODOLOGY1 Inclusion Criteria2 List of Regions3 List of Sectors141616PRIVATE DEBT IMPACT FUNDS4 Number of Participating Funds by Year5 Main Investment Sector6 Unlevered Versus Levered Funds7 Total Asset Size (USD million) and CAGR by Sector8 Geographic Breakdown by Main Investment Sector9 Return Philosophy10 Hedging Strategy11 Returns and Volatility by Hedging Strategy12 Returns and Volatility by Leveraging Strategy171818212428293033COMMUNITY DEVELOPMENT LOAN FUNDS13 Number of Participating Funds by Calendar Year14 Investment Sectors15 Leverage as a Percentage of Total Assets16 Total Asset Size and CAGR by Sector44454547APPENDIX TABLESPRIVATE DEBT IMPACT FUNDS1 Count of Financial Statements Submitted and Used2 Countries of Incorporation3 Fund Accounting Principles4 Fund Accounting Currencies5 Fund Asset Size by Place of Incorporation7070707070COMMUNITY DEVELOPMENT LOAN FUNDS6 Count of Financial Statements Submitted and Used716

ACRONYMSAUMBMR ORMR fundsNAVOFNPDIFSDGsSMETATERUNUSDWASHAssets Under ManagementBelow-Market-Rate Seeking FundsCompound Annual Growth RateCommunity Development Financial InstitutionCommunity Development Loan FundSwiss FrancsEquity EquivalentEuro Interbank Offered RateGenerally Accepted Accounting PrinciplesHigh-Net-Worth IndividualsInternational Financial Reporting StandardsInternal Rate of ReturnLocal CurrencyLondon Interbank Offered RateMarket-Rate Seeking FundsNet Asset ValueOpportunity Finance NetworkPrivate Debt Impact FundSustainable Development GoalsSmall or Medium-Sized EnterpriseTotal AssetsTotal Expense RatioUnited NationsU.S. DollarsWater, Sanitation, and Hygiene7

FOREWORDAMIT BOURI, CEO, GIINThe GIIN is pleased to partner with Symbiotics,a leader in performance analysis, to offer TheFinancial Performance of Impact Investing ThroughPrivate Debt. This report provides much-neededevidence and transparency on the performanceof private debt funds investing globally andacross a range of impact themes, and follows ourpublication of financial performance benchmarksin private equity and real assets.The Financial Performance of Impact InvestingThrough Private Debt confirms the credibility andviability of impact investing opportunities in theprivate debt asset class, the largest in impactinvesting. The findings indicate that a wide array ofinvestment options are available for those seekinga stable return, portfolio diversification benefits,and positive impact.Impact investing is one of the most promising –and perhaps critical – approaches to help solve theworld’s most pressing social and environmentalchallenges. Yet much more capital is required ifit is to meaningfully address issues such as thoserelated to climate risks, rising inequality, andaccess to basic services. By bridging knowledgegaps in both financial performance and impactmeasurement, we at the GIIN are working towardsa future where capital is available at scale to meetthese challenges.We hope that this report helps readers recognizetheir role in shaping the future of impact investing.For those already making impact investments, thisreport can inform how private debt can enhancea portfolio; we encourage investors to share theirfinancial performance data to help bring furthertransparency to the industry. For those new toimpact investing, we hope this report providesconfidence to enter the market and deploy capitalthat can generate powerful global progress whilealso meeting financial objectives.ROLAND DOMINICÉ, CEO, SYMBIOTICSThe Financial Performance of Impact InvestingThrough Private Debt is an important milestonein impact investment knowledge sharing andcapacity building. This investment class has beendriving private sector capital flows in the industryover the past decade and will continue to be a verylarge share of the capital focused on the SDG 2030horizon.This report provides important insights intoprivate debt impact fund business models, theirinvestment strategies and key terms, investorcharacteristics and impact measurement practices,and—foremost—their performance. This study is asuccess in itself, with over 150 funds participatingin the survey in its first year. It will also raiseinterest among the impact fund managementaudience, and among policy-makers, academicsand researchers, and, above all, investors seekingbenchmarks and references when approaching theindustry and reviewing their investment universe.Most importantly, we hope to replicate theexercise over the years and build lasting analysistools to further pursue these goals.We are both delighted with and grateful to theGIIN for this new partnership, with whom weshare a dedication to raising impact investmentawareness, transparency and knowledge. Webelieve this partnership contributes to buildingour ecosystem and furthering our impact investingobjectives.9

EXECUTIVE SUMMARYImpact investments — investments made into companies, organizations, and funds with the intentionof generating positive social or environmental impact (or both) alongside financial return — are vitalto addressing a range of global challenges, including slowing and mitigating climate change, endingpoverty and hunger, and achieving gender equality in both emerging and developed markets. In additionto pursuing their impact goals, impact investments also offer promising market opportunities forinvestors across the risk-return spectrum.This report adds vital new data to the expanding base of evidence regarding the financial performanceof impact investments. Private debt or fixed income instruments comprise the largest asset class inimpact investing, accounting for 34% of impact investors’ reported assets under management (AUM).1The Global Impact Investing Network (GIIN) and Symbiotics have partnered on this report to analyze inaggregate the performance of impact investing through private debt. All surveyed funds provided auditedor unaudited annual reports dating back to 2012 (or the earliest available year since), representing thesole basis on which all the return figures in this study were calculated. In general, this analysis showsthat private debt funds seeking positive impact can offer very stable returns across various private debtrisk-return strategies, sectors, impact themes, and geographies.Of two main chapters in this report, one focuses on Private Debt Impact Funds (PDIFs), and the otherfocuses on Community Development Loans Funds (CDLFs). These two types of debt funds were studiedseparately because they have different legal environments and financing constraints. Key highlights ofthe report for both PDIFs and CDLFs are summarized below.PRIVATE DEBT IMPACT FUNDSFifty PDIFs took part in the study.Key Findings › Impact: The most frequently targeted impactthemes are financial inclusion, employmentgeneration, and entrepreneurship. Othersinclude access to energy, health improvement,clean technology, sustainable consumption, andagricultural productivity.› Fund Size: Funds range in size from USD 3million to more than USD 1 billion, with amedian just below USD 100 million as ofDecember 2016. Total AUM in the samplewere USD 10.6 billion as of December 2016,registering compound annual growth of 15%between 2012 and 2016.› Return Philosophy and Net Returns: Althougha large majority of funds in the sample(representing on average more than 80% of1 Abhilash Mudaliar, Hannah Schiff, Rachel Bass, and Hannah Dithrich, 2017Annual Impact Investor Survey (New York: Global Impact Investing Network,2017), 25, vey2017.10total sample assets throughout the reviewedperiod) target competitive, risk-adjusted,market-rate returns, other funds in the sample,approximately one-fifth, intentionally targetbelow-market-rate returns. By weightedaverage, the funds targeting market-rate returnsgenerated a compound annualized net returnof 2.6% over the five-year period under review.Funds targeting below-market-rate returnsgenerated a compound annualized net returnof 6.8%. For levered funds, interest paid toinvestors on issued notes averaged 3%.› Portfolio Quality: As of December 2016, acrossthe full sample and by weighted average, fundsprovisioned 2.6% of their total portfolios forpotential losses while the average write-off

ratio