A Guide for Impact Investment Fund Managers

A step-by-step resource to creating and managing a private equity impact fund

Creating a Strong Investment and Impact Thesis

The number of investment funds increases every year according to the GIIN’s Annual Impact Investor Survey, making it all the more important for a fund to differentiate itself through a compelling investment and impact thesis. A clearly articulated thesis is coherent and evidence-based, stands out among competitors in the market, and can be distilled to a concise and persuasive pitch.

A well-crafted, coherent investment and impact thesis integrates all the pieces of a complex investment strategy into a single narrative that is thoughtful, thorough, and supported by data and other evidence. Impact investment funds have more complex stories to tell than traditional funds, which makes it especially challenging to develop a coherent fund narrative. From the outset, fund managers should have a clear sense of their fund’s intended impact in the context of their investment strategy and managers should be prepared to share it externally.

In crafting a clear fund thesis, fund managers might ask themselves: What existing need in the market does my investment thesis address? What is the evidence that the need exists, and what is the extent of the need? What is the theory of change? What underlying assumptions does the thesis imply? Do my proposed sector of investment, deal size, and deal type fit existing market needs? Do the expected returns and exit strategies seem realistic and appropriate given the market, investee potential, and investor expectations?

Demonstrating how a fund fits into the competitive market landscape is an important part of a coherent story. Fund managers might ask themselves: Would the fund be unique in the marketplace? How is it unique? What would make the fund compelling to investors? How does the fund’s impact strategy compare to others in the market? Answers to these questions influence key fund management practices, such as which types of LPs to target or investee businesses to approach given their capital requirements. For example, a venture capital fund that focuses on early-stage companies in the concept phase expects high risk and high return. The fund management team must also be assembled carefully, as team members’ individual experiences in a given sector or industry and their local relationships can make or break a fund’s success.

ADDITIONAL RESOURCES:

In addition, The Aspen Network of Development Entrepreneurs (ANDE), together with the Latin American Private Equity & Venture Capital Association (LAVCA) and LGT Impact Ventures, published a report about the growing landscape of impact investing in Latin America.

The resources below have been developed by the GIIN to help you integrate impact considerations into your investment management:

  • Set goals and expectations: The GIIN has coordinated with a variety of stakeholders through The Impact Management Project, facilitated by Bridges+, to identify shared fundamentals for understanding impact and more clearly articulating goals and expectations.
  • Define impact strategies and search for evidence: The GIIN’s Navigating Impact project provides a simple means to align impact goals and expectations to credible, evidence-backed investment strategies – such as those targeting housing, clean energy, or smallholder agriculture – and use metrics that indicate performance toward their goals.
  • Select metrics and set targets: IRIS is the GIIN’s catalog of generally accepted performance metrics that the majority of leading impact investors use to measure and manage social, environmental, and financial performance and evaluate deals. The GIIN manages IRIS, and offers it as a free public good to support transparency, credibility, and accountability in impact measurement & management practices across the impact investment industry.
  • Measure, track, use the data, and report: The Impact Toolkit is a digital database designed to help impact investors identify otherwise fragmented supporting resources across the web that are fit-for-purpose to one's impact measurement and management (IMM) needs.

 

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