related to the economy? Returns are higher for direct investments that are held for a longer period of time, as well as for smaller investments. We are also able to investigate differences in returns across sectors, including those considered especially conducive to economic development, such as financial institutions (Levine 2005) and infrastructure (Aschauer 1989, Roller and Waverman 2001). Ultimately, while sector explains much less variation in performance than geography, we find that investments in financial institutions, infrastructure, and mining have higher returns than agribusiness and services.

Beyond private equity specifically, our work contributes to a smaller, more recent literature examining the return and risk of impact investing strategies. The IFC, created to advance economic development, was one of the first investors to measure social outcomes associated with its investments. Its charter, which requires that investments be made with the intent to promote economic development alongside financial profit, aligns closely with the standard industry definition of impact investing.<sup>4</sup> There is little evidence regarding the financial and social performance of impact investment strategies. Brest et al. (2018) argue that impact investors, because their deployment of capital in pursuit of social or environmental goals leads them to invest in projects that would not have been financed otherwise, earn lower risk-adjusted returns than traditional investors. Barber et al. (2020), comparing data for a similar set of non-impact funds to data obtained from PreQin on 159 impact funds between 1995 and 2014, find the latter to achieve, on average, a 4.7 percentage point lower IRR. Jeffers et al. (2024), independently assessing the performance of venture capital impact investment funds that target market returns, find that although such funds underperform the market, they also incur less risk than traditional venture capital funds. Cole et al. (2023) study whether impact investors deploy capital in different industries and locations compared to traditional investors, finding impact investors are more likely to invest in poorer areas and nascent industries. Our paper provides the first estimate of the long-run return to an impact investing strategy that seeks to achieve market returns by providing capital to projects that would otherwise not have received sufficient funding due to imperfectly integrated financial markets. We evaluate differences in risk across investments within the impact investing strategy by demonstrating how the top and bottom tails of returns vary across multiple international markets, a proxy for the risk in those markets.

> 4The IFC identifies itself as a leader in impact investing (IFC 2019a, see the foreword by CEO Philippe Le Houérou). According to the Global Impact Investing Network, “impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return” (see `https://perma.cc/4PFV-YZNM` ). Impact investors are distinguished from socially responsible investors (SRI), whose portfolios exclude (e.g., gambling, coal) or include (e.g., clean energy, affordable housing) particular investment categories, and who do not necessarily aspiring to “impact” the world through such choices (Renneboog et al. 2008, Hartzmark and Sussman 2019).

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