We document that investors derive nonpecuniary utility from investing in dual-objective VC funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower IRRs ex post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5-3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and UNPRI signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., ERISA) exhibit low WTP.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Brad Barber is on the advisory board of Vert Asset Management and was co-principal investigator for the CalPERS Sustainable Investment Research Initiative grant.
Brad M. Barber & Adair Morse & Ayako Yasuda, 2020. "Impact Investing," Journal of Financial Economics, . citation courtesy of