As evidence mounts that impact investments can generate returns competitive with conventional investment returns, the same is true in the private debt asset class, according to a report released Tuesday by the Global Impact Investing Network and Symbiotics, a market access platform for impact investing.

Private debt or fixed income instruments comprise the largest asset class in impact investing, which pursues positive social and environmental impact goals, accounting for 34% of impact investors’ reported assets under management, a 2017 GIIN survey found.

“This report offers the most definitive evidence for private debt investors still not sure if impact investing is right for them,” GIIN’s CEO, Amit Bouri, said in a statement. “Impact investments in private debt are an attractive option that can yield a stable return and drive capital toward powerful global progress.”

Besides financial performance, the new report examines the investment strategies, fund structures and impact measurement practices of two types of vehicles: 50 private debt impact funds, which primarily invest in emerging markets, and 102 community development loan funds, which exclusively invest in the U.S.

Both PDIFs and CDLFs in the study offered stable returns. Weighted net returns of PDIFs averaged 2.6% per annum since 2012, with the 90th percentile registering 10% returns in 2016.

CDLFs paid an average of 2.9% on their notes, with the 90th percentile registering 3.6% return in 2016.

According to the report, PDIFs had a Sharpe ratio of 0.77, which compares favorably with other traditionally stable asset classes such as bonds or cash. They also offer an uncorrelated asset for portfolio diversification.

The fixed income funds demonstrated very high portfolio quality overall, with average write-off ratios in both sets of funds below 1%.

Characteristics of the Funds

Private debt impact funds in the sample ranged in size from $3 million to more than $1 billion, with a median just below $100 million as of December 2016. Total assets in the sample were $10.6 billion as of December 2016, registering compound annual growth of 15% between 2012 and 2016.

A majority of the PDIF sample focused on the financial services sector, followed by arts and culture, education, energy, and food and agriculture.

The PDIFs invest in emerging markets around the world, with nearly two-thirds of their overall weighted portfolio allocations going to Eastern Europe and Central Asia and to Latin America and the Caribbean.

Some 40% of sample PDIFs were fully hedged. The fully unhedged ones demonstrated higher volatility, but also higher average returns.

Approximately one-third of PDIFs used leverage, which represented on average 20% of their total assets.

Institutional and retail investors accounted for the biggest share of funding for PDIFs: 37.9% and 33.5%, respectively.

The funds measure impact through various output metrics, which vary by impact theme and include such metrics as “number of women/clients reached” and “metric tons of CO2 emissions reduced.”

The report noted that typical community development loan funds were small in asset size, with approximately $25 million under management at the median as of December 2016. Assets in the total sample as of December 2016 were $5.6 billion, with an average CAGR of 5% since 2012.

CDLFs with a core focus on affordable housing dominated the sample, representing about half of total sample assets. Other funds focused on business lending, community facilities and micro-enterprises. Ninety-eight out of 102 CDLFs were nonprofit companies.

All CDLFs used leverage, which accounted for almost half of total assets.

According to the study, 75% of CDLF funding was sourced from institutional investors, including pension funds; financial institutions such as insurance companies, banks and foundations; and nongovernmental organizations. Public funders represented 18% of total assets.

CDLFs measure impact through various output metrics encompassed by different impact themes, including affordable housing units created or retained, jobs created or retained and number and diversity of beneficiaries reached.

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