What does it take to be a top-quintile fund manager delivering the highest possible risk-adjusted… impact?
A growing cohort of impact investing firms are distinguishing themselves by starting with a problem to be solved, tackling market failures and structuring financing around enterprises’ needs. Sometimes, such solutions will need to be subsidized. Sometimes, they’ll go to the moon.
These fund managers are seeking impact first.
“It allows us to offer capital on terms that enable our investees to scale on mission, rather than drift up-market,” says Tara Murphy Forde of Global Partnerships, a Seattle-based impact-first manager that has deployed more than $875 million to more than 200 social enterprises since 2005. “It means we can center the needs of clients by addressing the multi-dimensional nature of poverty and how people experience it in their lives.”
Murphy Forde will join other impact-first fund managers on this week’s Agents of Impact Call, “The real returns of impact-first fund managers” (RSVP today). Ahead of this week’s Agents of Impact Call, ImpactAlpha asked our guests to share market perspectives.
“Working capital is the new equity. So many impact companies will never have their ‘unicorn’ moment but that doesn’t mean they aren’t providing real value to the people and communities they serve,” says Caroline Bressan of Open Road Impact (see, “Standing up for impact-first capital at Open Road Impact”). “‘Impact-first’ means putting the impact first in terms of the problem you are trying to solve instead of the products used to invest.”
True costs of impact
For years, impact investors have been asked to justify themselves against a vague and shifting benchmark known as risk-adjusted “market-rate” returns. The phrase, intended to convey commercial discipline and competitive financial performance, has long obscured more than it illuminates.
For starters, market-rate is not all that it’s cracked up to be. Legacy venture and private equity fund managers may promise sky-high returns, while instead delivering mediocre results. For the first half of 2025, according to Cambridge Associates, US private equity funds overall earned 3.9%. Venture capital firms earned 6.4%. As impact fund managers face down what could be a fourth straight year of challenging fundraising, investors’ inflated expectations have become a major obstacle.
Moreover, extractive investments that make up the benchmarks, in many cases benefit from subsidies, regulatory insulation and the ability to externalize harm, inflating what gets labeled “market” performance. Impact investments, by contrast, that serve lower income communities, operate in thin or emerging markets, or absorb risks others avoid, are often expected to internalize social and environmental cost while competing against benchmarks built on their exclusion.
Global Partnerships Open Road Impact, Acumen, Kiva, the Miller Center for Global Impact and four other impact-first fund managers released a study, “The True Cost of Impact-First Investing.” Impact-first funds match or outperform commercial funds on deals per year, and cost per deal, the study found. Such funds do incur higher cost per dollar deployed, driven by things like smaller ticket sizes and hands-on support. Such costs “reflect the price of inclusion,” the report said.
Rhia Capital’s first two funds invest commercially in businesses in sexual, reproductive and maternal health. “For our next fund vehicle, we’re exploring catalytic capital — intentionally designed to accept lower returns to achieve transformative outcomes,” said Rhia’s Erika Seth-Davies. “The next fund goes further by addressing the well-documented capital gap for community-led health innovations and early-stage solutions.”
Impact-first returns fall along a spectrum and of course “concessionary” returns are at one end. The other end of the spectrum may meet or exceed “market-rate.” Acre Impact Capital, a private-debt fund manager focused on climate infrastructure financing gaps in Africa, provides the layer of commercial debt required to unlock export credit financing, a low-risk, high-impact proposition.
“We have a unique strategy of investing alongside export credit agencies,” says Hussein Sefian of Acre Impact Capital. “They provide the concessional element of the debt package, while we can invest on market terms. This allows us to attract commercial investors as well as impact-first investors.”
Impact-first managers are making the case to family offices, philanthropies and other investors who may be freer from return expectations from their own stakeholders. A growing number of their investors, are digging in on impact first as well (see, “The surprising resurgence of impact-first investing”).
“We feel that the investor-side should be doing the brain damage to craft an innovative financial solution for the impact model, rather than asking the founder to pretzel themselves to accommodate risk profile, vehicle, and portfolio construction we prefer.” says Daniel Tellalian, who leads the Echoing Green Signal Fund.
Also joining the Call are Acumen’s Dan Waldron and Brigit Helms of the Miller Center for Global Impact, which led the impact-first study (responses have been lightly edited).
Fundraising environment
Caroline Bressan, Open Road Impact: “There is no clear substitute to the US government’s pull back from climate or development commitments. However, there are a handful of ultra-high-net-worth investors standing up impact investing strategies that are looking to deploy meaningful capital within their areas of focus. If your strategy is within a given area of focus, there are investors out there willing to take risk and anchor new strategies.”
Erika Seth-Davies, Rhia Ventures: “There is a growing curiosity and interest among some asset owners who are seeking deeper alignment through impact-first strategies. There is capital flowing to these strategies. The political scrutiny around anything that hints at ‘ESG’ is forcing managers to go beyond slogans to define in more concrete terms their additionality and impact.”
Hussein Sefian, Acre Impact: “We’re Africa focused. Raising capital for Africa is always a challenge. Data is showing that the typical fund raise is now taking 12-18 months longer than usual due to 1) local currency volatility and its impact on USD returns; and 2) rate of deployment.”
Dan Waldron, Acumen: “There’s more openness to alternative approaches, but also a sense of uncertainty.”
Brigit Helms, Miller Center for Global Impact: “The real challenge today is to attract more and more creative use of catalytic philanthropic resources as we address the “cake” myth: That you can have your cake and eat it too. Outside of a few sectors like fintech, there are real tradeoffs between deep impact and financial returns.”
Tara Murphy Forde, Global Partnerships: “We expect to see more catalytic capital and philanthropy entering the space. With this comes an opportunity to design blended capital vehicles that crowd in institutional capital and achieve scale.
Daniel Tellalian, Echoing Green Signal Fund: “From our perch we see a (slight) increase in DAF (donor-advised fund) participation, and some more catalytic capital coming off the sidelines from private foundations.”
Why impact first?
Dan Waldron: “We mostly say we are ‘patient capital.’ That being said, yes, we are impact-first or problems-first: we are investing in for-profit models that solve social problems. The reason we use investment capital is that it aligns incentives more appropriately than grants, and secondarily because it’s more capital-efficient.”
Caroline Bressan: “For us, the problem is that financial markets serving the impact sector are inefficient and leading to lower cumulative impact. Our impact-first approach means identifying this problem and then building a set of tools and interventions to solve that problem. Those tools can include market rate, concessionary, philanthropy and advocacy activities.”
Brigit Helms: “Yes, we are impact-first. This means we prioritize the achievement of impact over a financial return to investors. It’s our strong belief that you cannot be entrepreneur-centric and be maximizing financial returns to investors.”
Erika Seth-Davies: “We describe our approach as impact-first which means the impact is not an afterthought but a central, co-equal part of the approach – from sourcing to diligence to portfolio management. This means leading with impact considerations at every step of the process. We weigh impact outcomes on par with financial returns, ensuring our investments don’t just generate value for investors but also create measurable, positive change in the areas we care most about.”
Tara Marphy Forde: For Global Partnerships, impact-first investing has three key traits:
- It deliberately designs capital for impact at scale. Scaling value for underserved segments, in our case people in poverty, comes with a different set of economics. Our investors accept modest financial returns to help enterprises sustain their focus on value for poorer/more marginalized clients, as they grow and innovate.
- It navigates a set of core tensions as it lives in that “middle” space between traditional investing and philanthropy: Present and future – investing in both early-stage for tomorrow’s solutions and proven models for impact today; Scale and impact – the economics and true costs are unique as is the impact we’re able to achieve; Evidence and insight – data is critical, so is lived experience and context for the fullest picture of impact.
- It recycles capital so it can be used over and over for impact. Since the model of impact-first investing we employ is based around low cost debt for social enterprises, we can reloan out the capital once it is repaid, getting more impact for each dollar originally invested in our funds.
Hussein Sefian: “As an impact investor, everything we do is driven by impact considerations: deal selection, investment process, impact measurement. ‘Impact-first’ means partners seek us out on transactions because they want to benefit from our impact-lens, analysis, data collection, and reporting.”
Daniel Tellalian: “We sometimes refer to our approach as ‘founder-first.’ People who are familiar with the Echoing Green fellowship know that our portfolio of social entrepreneurs index very high on social impact. Our work at the fund is to assess the potential journey of the enterprise, and determine whether our follow-on capital can help the organization breakthrough to more transformative impact.”
Being an impact-first manager
Dan Waldron: “It lets us start with the problem we are trying to solve, and invest accordingly.”
Caroline Bressan: “As an impact-first fund manager, our investors are also impact-first which means they are explicitly asking us to take risks in favor of maximizing impact instead of only maximizing for financial return.”
Brigit Helms: “It allows us to go first, take risks, move quickly and lead with trust in the person/organization rather than a one-size-fits all, due diligence and documentation-heavy process.”
Erika Seth-Davies: “Yes, we describe our approach as impact-first which means the impact is not an afterthought but a central, co-equal part of the approach — from sourcing to diligence to portfolio management in terms of the support we offer portfolio companies. We weigh impact outcomes on par with financial returns, ensuring our investments don’t just generate value for investors but also create measurable, positive change in the areas we care most about.”
Tara Marphy Forde: “It means we can invest where there are sustained market failures and make a real difference in addressing them.
Hussein Sefian: “ Our being ‘Impact-first’ means partners seek us out on transactions because they want to benefit from our impact-lens, analysis, data collection and reporting. This gives us a rich deal flow that others might not see because our impact work adds value to our partners.”
Daniel Tellalian: “We refuse to burden ourselves with impatient or extractive capital partners. There is no pressure to exit quickly, to “grow fast or die” or to engage partners who view impact as a drag on return. We view a financially sustainable, organically growing enterprise that delivers strong social impact year-over-year as a win. We view significant leverage or co-investment as a win.”
What next?
Dan Waldron: “We recently deployed our first impact-linked convertible note, where we will take less ownership of the company if they continue to grow their impact. We’re also starting to see more working capital layered onto equity investment, which is helping our agricultural investees to break out of low-growth ruts. And I think we’re starting to get a better handle on just how fundamentally important long-term governance is.”
Brigit Helms: “We believe that we need to hit the ‘reset button’ on impact investing, re-centering the field on the impact side of the equation. For us that means committing to radical collaboration.
Tara Marphy Forde: “In terms of forecast for this year, we expect to see more catalytic capital and philanthropy entering the space. With this comes an opportunity: to design blended capital vehicles that crowd in institutional capital and achieve scale.”
Hussein Sefian: We’re excited to see the export finance industry transforming and converging with development finance. Also, we expect to slowly — but not fast enough – to see more interest in African capital investing across Africa (not only in their own country).”
Daniel Tellalian: “In the US, we are seeing a number of well-regarded nonprofits spinoff for-profit entities (typically with technology upgrades). We have nonprofit leaders that know their constituents intimately, understand the science and policy beyond a social condition, developed hard-earned IP, and have spent years building deep credibility in the sector. Now some have successfully seen how that knowledge and experience can be reintroduced with an earned revenue model and scaled quickly with technology (yes, including AI) and a leaner enterprise. Perfect for impact capital.”
The Call: “The real returns of impact-first fund managers.” On this week’s Agents of Impact Call, Open Road Impact’s Caroline Bressan, Rhia Ventures’ Erika Seth Davies, Global Partnerships’ Tara Murphy Forde, Echoing Green’s Daniel Tellalian, Acre Capital’s Hussein Sefian and other impact-first fund managers will explore the true costs – and returns – of impact-first investing, Wednesday, Jan. 21, at 10am PT / 1pm ET / 6pm London. RSVP today.
