Financial and Social ReturnThere are few investment opportunities that offer both financial and social return like microfinance, and for the socially responsible investor, the "double bottom line" returns offered by this type of investment are an attractive proposition.The Gray Ghost Fund is a "double bottom line" line investor. We seek both financial and social return on our investments. Each investment is assessed based on its ability to provide a reasonable risk-adjusted rate of financial return, as well as social impact. At Gray Ghost we employ proprietary calculation models to analyze social return based on innovation, scale, outreach, and financing. Such calculations enable us to quantify the social return on an investment. We calculate a financial hurdle rate, which is comprised of four components — benchmark rate, credit risk (default) premium, country-region premium and liquidity premium. We consider the combination of financial and social return to be the total, blended return from an investment and use this to guide us in our investment decisions. Social return implies subjective value judgments about what activities are more socially beneficial. We recognize that each investor views and makes decisions about risks and social value differently. What is a reasonable target rate of return will also vary for each individual investor. However, the appeal of measurable social return is what motivates socially conscious investors to consider microfinance as a viable investment opportunity. IN THIS SECTION:Evaluating Social ReturnGray Ghost recognizes that the definition and measurement of social return is an inexact science. A great deal of work is underway to develop conventions and standards that can be used to consistently evaluate social return. We anticipate incorporating such conventions into our analysis as they become available. More Our Method for Calculating Social ReturnWe use a number of indicators to calculate social return. Of the 16 sub-indicators, four look directly at the investment fund itself, while the remaining 12 look at the portfolio of the microfinance institutions (MFIs) in which it invests or has targeted. More Financial-Hurdle RateFor each investment, we calculate a financial-hurdle rate, defined as the rate of return sufficiently compensated for risk to be equivalent to the rate available on comparable mature U.S. Treasury securities. More Blended Rate of ReturnIn making its investment decisions, Gray Ghost combines the estimated rate of return with an estimated "social return" to come up with a blended rate of return. More |
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