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Dissertation
How to drive impact performance in the impact-first investment fund managed by TELOS Impact, using an impact-based financial, reward scheme in particular?
Authors: --- --- ---
Year: 2019 Publisher: Liège Université de Liège (ULiège)

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Abstract

This project was carried out for Telos Impact, a Brussels-based independent impact advisory firm that was recently mandated by some of its clients to set up and manage an impact investing fund on their behalf, Fund SI. The fund is an evergreen, impact-first fund pursuing an investment strategy aimed at delivering strong positive environmental impact. As investment manager of Fund SI, Telos Impact is entitled to a compensation in the form of a fixed part paid annually, as well as a variable part that is yet to be defined. Whilst traditional variable compensation schemes typically reward fund managers for their financial performance, the framework for Telos Impact should, in line with the fund’s fundamental impact strategy, incentivise the investment manager on their impact performance as well. This research aims to determine an optimal variable compensation scheme for Telos Impact as investment manager of Fund SI, in which the impact performance of the fund would be appropriately weighted.
Some pioneer impact funds have designed innovative structures for their variable compensation to be tied to the fund’s impact performance. Nevertheless, the concept of impact-based financial reward schemes is very novel and was never well documented. Therefore, this research relies on the data provided by twenty-two interviews conducted with impact investing fund managers, impact advisors and experts in order to gather their insights on those schemes. We first identify frameworks that may be used to structure an impact-based financial reward scheme, in the form of a carried interest or a bonus. Then, based on interviewees’ experiences, opinions and recommendations, we investigate how an impact-based financial reward scheme may contribute to securing the fund manager’s focus on the fund’s impact performance.
We find that an impact-based financial reward scheme may be valuable as it ensures fund manager’s commitment to impact, to the extent that it is based on a sufficiently reliable impact assessment methodology and appropriately mitigates risks related to impact-based incentives. The findings allow to make a recommendation to Telos Impact for an impact-based financial reward scheme that would best fit the context of Fund SI and incentivise the investment management team to strengthen the fund’s impact performance.


Dissertation
Quelle est la proposition de valuer d'un fonds d'investissement à impact par rapport aux instruments de financement traditionnels?
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Year: 2022 Publisher: Liège Université de Liège (ULiège)

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Abstract

Impact investing is a recent concept linking the best of both worlds between philanthropy and
entrepreneurship. This concept was born to overcome the inefficiency of public authorities in solving major social and environmental problems. Impact investing is characterized by the search for a double profit, namely a financial return as well as a social return. One of the main components of the definition is also the measurement of impact, which is necessary to be able to compare the relevance of two projects, or to see if the impact objectives have been achieved.
This market is still considered to be a niche market, and like any recent market, its development
faces various obstacles and opportunities. Indeed, the non-consensus regarding the definition of the concept, the difficulty of measuring impact, the lack of regulation and liquidity or the lack of
investment ready companies are challenges that will have to be overcome before the market
develops further. But practitioners are optimistic, as we will see in this research.
Given the figures, the market still has good days ahead. However, theorists have not been able to keep pace with practitioners in the production of scientific papers related to the world of social
impact finance. Thus, few or no articles cover the concept of the value proposition of an impact
investment fund.
After describing the main characteristics of the market, ranging from its history to its actors and
ecosystem, to its challenges and opportunities, this work will attempt to provide answers to the
following research question:
“What is the value proposition of an impact investment fund compared to traditional financing
instruments?”
As there is no real scientific literature on the subject, we conducted 18 interviews with industry
professionals to give us an idea of the potential value proposition of an impact entity, the aim will
also be to learn more about the current state of the market, mainly in Belgium

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