對(duì)新興市場(chǎng)和發(fā)展中經(jīng)濟(jì)體進(jìn)行投資的長(zhǎng)期回報(bào)

1、Policy Research Working Paper 9366Abstractftere is growing interest in impact investing, the idea of deploying capital to obtain both financial and social or envi- ronmental returns. Examination of every equity investment made by one of the largest and longest-operating impact investors across 130 e

2、merging market and developing econ- omies shows this portfolio has outperformed the S&P 500by 15 percent. Investments in larger economies have higher returns, and returns decline as banking systems deepen and countries relax capital controls. ftese results are consistent with imperfect integration o

3、f international capital markets and the thesis of impact investing that some eligible markets do not receive sufficient investment capital.ftis paper is a joint product of the Development Research Group, Development Economics; the Finance, Competitiveness and Innovation Global Practice; and the Inte

4、rnational Finance Corporation Economics and Private Sector Development Vice Presidency. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on

5、 the Web at http:/ HYPERLINK /prwp /prwp. fte authors may be contacted at HYPERLINK mailto:treed tr HYPERLINK mailto:eed eed.Long-run Returns to Impact Investing in Emerging Market and Developing Economies HYPERLINK l _bookmark0 1Shawn ColeHarvard Business School and NBERMartin MeleckyWorld BankFlor

6、ian MldersInternational Finance CorporationTristan ReedWorld Bank Development Research GroupJEL Classification: F36, G15, O16, O19Keywords: impact investing, private equity, venture capital, international capital market integration1 We thank Mohan Manem especially for providing an understanding of t

7、he data. Seminar participants at the Harvard Business School Finance Unit, the International Finance Corporation and the World Bank Development Research Group provided helpful comments, along with Adam Fegan, Paddy Carter, Penny Goldberg, Neil Gregory, Kostas Kollias, Fanele Mashwama, Camilo Mondrag

8、n-Vlez, Jacob L. Otto and Thomas Rehermann. Anshul Maudar provided capable research assistance. The views expressed in this paper are those of the authors and do not necessarily represent those of the World Bank Group. All results have been reviewed to ensure that no confidential information is disc

9、losed.IntroductionThere is growing interest in impact investing, the idea that financial capital can be deployed to obtain both financial as well as (measurable) social or environmental returns. The idea is controversial. Brest, Gilson and Wolfson (2018) for example argue that an impact investor can

10、 make a difference in the world by deploying capital HYPERLINK l _bookmark1 2 only if their pursuit of social or environmental goals leads them to invest in projects that would not have been financed otherwise. If capital markets are perfectly integrated (i.e., the competitive risk-adjusted return i

11、s the same in all markets) in order to do so the impact investor must accept a lower risk-adjusted return than traditional investors. Put differently, to believe that the impact investor can do as well financially as traditional investors while also making a difference, one must also believe that th

12、ere are frictions preventing the flow of capital between markets such that commercially-viable projects nonetheless fail to receive financing, and that the impact investor is able to identify and finance these projects.This paper offers a fresh look at the plausibility of this assumption through ana

13、lysis of the cash flows associated with every equity investment made by the International Finance Corporation (IFC), a member of the World Bank Group, across 130 emerging market and developing economies (EMDEs). Founded in 1956 with a mandate to “further economic development by encouraging the growt

14、h of productive private enterprise in member countries, particularly in less developed areas, the IFCs understanding of how its investments contribute to improvement in social or environmental outcomes is shared by other investors and is predicated on the view that some eligible markets do not recei

15、ve sufficient investment capital. The charter states “the Corporation shall.assist in financing.in cases where sufficient private capital is not available on reasonable terms.” The Corporation explicitly seeks a commercial return on investment.The IFCs history and approach to investing in EMDEs make

16、s its portfolio uniquely suited for an investigation of whether certain markets offer expected returns that are systematically higher than others, and thus opportunities for the impact investor to invest in projects that are not already being financed at the lowest competitive rate available in this

17、 set of markets. Previous studies of this question have tested for cross-country covariance in the return to public equity indices (Campbell and Hamao, 1992; Harvey, 1995) or for a common marginal product of2 Investors could plausibly affect outcomes in other ways as well, such as by insisting on ad

18、herence to environmental, social or governance (ESG) criteria, which could affect company performance.capital implied by the national accounts in a cross section of countries (Caselli and Freyer, 2007). The IFC portfolio is unique in that it allows one to test for differences in returns to private e

19、quity investments across many countries in a way that is free from sampling problems such as survivorship bias. HYPERLINK l _bookmark2 3 The portfolio is more diversified across countries than either foreign direct investment (FDI) inflows or the MSCI Emerging Market (MSCI EM) index of public equiti

20、es, both of which have a high concentration in the largest economies such as China and Brazil. Relative to the market, the IFC also has a substantially higher share of investment in very poor countries (i.e., those with real GDP per capita of $1,000 or less).A principal concern when comparing invest

21、ment returns across countries is that differences reflect differences in risk rather than in the risk-adjusted return per se. We address this issue in three ways. First, since we observe the timing of cash flows we are able to measure returns in terms of a public market equivalent (PME), which accou

22、nts for both the absolute level of return and the diversification value of payouts that are less correlated with a global risk factor as in the capital asset pricing model (Kaplan and Schoar, 2005; Sorensen and Jagannathan, 2015).Second, since the IFC invests across many sectors, including those con

23、sidered especially conducive to economic development such as financial institutions (Levine, 2005) and infrastructure (Aschauer, 1989; Roller and Waverman, 2001), we are able to compare returns across countries within production technologies that may vary in their level of non-diversifiable risk. Th

24、ird, the length of the time seriesthe longest in existence of which we are aware provides assurance that differences in average returns across countries are not driven by the realization of non-diversifiable country risk in a few particular years.The analysis yields three main results. First, in pur

25、suing its strategy the IFC has achieved attractive returns over the long run. Benchmarking the IFCs equity investment portfolio to the S&P 500 (available for our entire sample period), we calculate that the total portfolio has obtained a PME of 1.15, indicating that the portfolio has returned 15 per

26、cent more over its life than an equivalently timed investment in the public index would have. Alternative benchmarks yield similarly attractive estimates such as a PME of 1.30 when using the MSCI EM index (after 1988, when the index becomes available). Given our data include the portfolio of a singl

27、e investor we do not claim that this performance is representative of the universe of EMDE private3 Our paper is related to a few employing data on the complete portfolio of a single private equity investor: Gompers and Lerner (1997) study the portfolio of Warberg Pincus and Kerr, Lerner and Schoar

28、(2014) study the portfolio of two prominent angel investment groups, Tech Coast Angels and CommonAngels.equity investments. The IFCs membership in the World Bank Group for instance may offer it protection from expropriation not available to other investors. Nonetheless, given it is the only internat

29、ional investor with a portfolio spanning such a large and diverse set of countries and because it co-invests with a number of funds, the portfolio provides a unique view of the return to private investment in EMDEs.Second, we demonstrate that two groups of country-level covariates, market size and f

30、inancial system openness and development, predict performance in a way that is economically and statistically significant. More populous EMDEs have higher mean and median returns within sectors. Returns fall as economies relax capital controls and deepen their banking sectors.These findings are cons

31、istent with the thesis that there are opportunities for impact investors to earn at least a market return while providing capital that is not otherwise available. If these economies could access all the capital they needed, competition between investors would have caused the return on capital to be

32、the same in all markets, regardless of size, openness or financial development.Third, country risk factors including political risk, perceived corruption, and ease of doing business measured at the time of investment do not significantly predict financial performance. Macroeconomic conditions over t

33、he course of the investment however have material effects, with a 1 percent increase in cumulative annualized real GDP growth over the life of the average investment8 yearsassociated with an additional 6.62 percentage points of excess return on that investment. On the other hand, local currency depr

34、eciation worsens the performance, while local inflation (controlling for the depreciation) is associated with higher returns. There is some evidence that improvement in sovereign risk during the investment period improves returns.These results suggest that what matters most in country risk assessmen

35、t is the forecast of macroeconomic fundamentals, rather than the situation at the time of investment.Our paper contributes to at least three literatures. First, we add to the understanding of the returns to private equity investments generally, and impact investing in particular. While the U.S. priv

36、ate equity industry has been well studied (see Kaplan and Sensoy, 2015, for a comprehensive review) there is very little rigorous evidence available on returns in EMDEs.Lerner et al. (2009) provide an important exception: they use data from Capital IQ to construct a database of private equity invest

37、ments around the world starting in about 1990. The authors find that emerging markets comprise a small fraction of total private equity investment, and thatcountry characteristics have some influence on whether funds pursue strategies of financial engineering, governance engineering, and/or operatio

38、nal engineering. While they are unable to measure returns, they examine exits, and find a lower likelihood of success in wealthier countries, and that deals that are undertaken in “hot” markets are more likely to fail. Our paper contributes to this literature by a) providing a history of time series

39、 over twice as long, and b) providing the first systematic evidence of returns relative to a benchmark (PME) free of survivorship bias.A smaller and more recent literature examines the performance of impact investing strategies. Kovner and Lerner (2015) examine 28 community development venture capit

40、al firms in the United States (CDVCs). While they cannot characterize returns, they find such funds invest in less developed US geographies and make earlier stage investments than traditional VC funds. Grey et al. (2016) survey 53 impact investing private equity and venture capital funds, collecting

41、 both survey reports of returns and audited financials. Using the Russell Microcap 2000 as a comparator, they estimate that a “pooled end-to-end aggregate PME calculation for the 170 market-rate-seeking investments in the sample returns a PME gross of fees, expenses and carried interest of .98.” A p

42、otential concern with this study is that funds could choose whether to report performance or not; Cochrane (2005) shows that selective reporting can have important effects on estimates of the returns to venture capital investing. Finally, Barber, Morse, and Yasuda (2020) obtain data from PreQin on 1

43、59 impact funds between 1995 and 2014, and, comparing them to a similar set of non-impact funds, find that impact funds on average achieve a 4.7 percentage point lower IRR. Their paper focuses on impact investing strategies in general, rather than seeking to distinguish between funds that seek to ob

44、tain market (commercial) returns and funds that explicitly promise investors lower (concessional) returns. A finding that the average return for both types of these fundsthat is, when pooled togetheris below market does not necessarily indicate that funds seeking market returns obtain below market r

45、eturns. By analyzing IFC data we provide the first estimate of the long-run return to an impact investing strategy that seeks market returns.Second, we contribute new firm level evidence to the long standing debate about whether international credit frictions exist, and their quantitative implicatio

46、ns for the economy (Feldstein and Horioka, 1980; Lucas, 1990; Alfaro, Kalemli-zcan and Volosovych, 2008). Existing examples of variable or excessively high marginal products of capital at the firm level in EMDEs are from enterprises with assets less than $400,000 within an individual country (Banerj

47、ee andDuflo, 2014). In contrast, we compare across many countries the return to financial capital in large firms. For instance, the average size of a transaction in the IFCs equity portfolio was$19.5 million in the most recent decade.Third, we add to the literature on macroeconomic risk through the

48、analysis of the relationship between key macroeconomic variables and investment returns. Given that equity investments represent real assets economic theory suggests that equity investments may be used as a hedging instrument against unexpected inflation, and we should therefore expect a positive co

49、rrelation between performance and inflation. Exchange rate movements are also expected to impact equity returns such as in the case of exporting firms whose competitiveness increases when the home currency depreciates. However in the empirical literature there is some evidence of a negative correlat

50、ion between equity returns and depreciation (Hau and Rey, 2006). Sovereign risk ratings, which approximate a set of macroeconomic risk factors, have shown to be negatively correlated with equity returns as shown for a set of countries by Brooks et al. (2004) and in the case of Argentina by Hbert and

51、 Schreger (2017).The paper proceeds as follows. Section II provides background on the IFCs strategy and operations. Section III reviews the equity portfolio data and measurement of financial returns at the investment (firm) level. Section IV describes the allocations and summarizes portfolio and ind

52、ividual investment performance. Section V develops and implements an empirical approach to test for perfect capital market integration using the investment level data. Section VI concludes, with reference to the ongoing popular discussion of impact investing.IFC, Private Equity, and Impact Investmen

53、tThe IFC was created in order to advance economic development and for this reason identifies as an impact investor. HYPERLINK l _bookmark3 4 Through its investments the IFC today seeks to contribute to improvement in social and environmental outcomes aligned with the United Nations Sustainable Devel

54、opment Goals (IFC, 2019b). 185 member countries own and govern the institution, determine its policy, and provide equity capital. The balance sheet size stands at4 See the foreword by CEO Philippe Le Hourou to IFC (2019a). Though the origin of the term “impact investing” is usually attributed to a c

55、onference held by the Rockefeller Foundation in 2007 the concept is much older: Around the year 200 Rabbi Shimon ben Lakish is reported to have said, with regards to helping a needy person, that “a loan is greater than a donation, and a business partnership is greater than all of them” (Levine, 2010

56、, p.291).approximately $99 billion, of which $43 billion are development-related investments and the rest are liquid securities (IFC, 2019c). The carrying value of the equity investment portfolio comprises 30% of development-related investments.The IFC charges market-based rates for its loans and se

57、eks market returns on equity investment (IFC, 2019d). HYPERLINK l _bookmark4 5 The institutions investment on its own account generally does not exceed 25% of the value of a project, with other private investors participating through loan syndications, parallel investments, and other instruments. Gi

58、ven its co-investment with others, we view its portfolio as potentially informative about the returns available to private investors in the markets in which it operates.Figure I charts the institutions financial history in three ratios: return on equity (net income/total capital), leverage (total as

59、sets/total capital) and administrative expense (non-interest expense/total assets). HYPERLINK l _bookmark5 6 The IFC made its first loan in 1957, providing $2 million to Siemens Brazilian affiliate (IFC, 2018). In 1961, the charter was amended to allow holding equity, leading to a surge in equity in

60、vestment during 1963-64 to about 50% of total investment (Kapur et al., 1997). HYPERLINK l _bookmark6 7 Equity investment in private markets would become the basis for growth in the capital base through retained earnings, with realized gains from these investments leading to high points in return on