We provide the first analysis of the risk exposure and risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a dataset of impact fund cash flows and exploit distortions in VC performance measures to characterize risk profiles. Impact funds have a lower market 𝛽 than comparable private market strategies. Accounting for 𝛽, impact funds underperform the public market, though not necessarily more so than comparable strategies. We consider alternative pricing models, accounting for sustainability and emerging markets risk. We show investors’ wealth portfolios and taste change the perceived financial merit of impact investing.

We draw on new data and theory to examine how private market contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom, 1991), few impact funds tie compensation directly to impact, and most retain traditional financial incentives. However, funds contract directly on impact in other ways and adjust aspects of the contracts such as governance. In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals.