Building impact portfolios

Abstract

april 2017 building impact portfolios jeff finkelman athena capital advisors llc 55 old bedford road lincoln, ma 01773 781.274.9300 athenacapital.com the potential of impact investing is often illustrated in stories of individual investments. new entrants to the field and experienced participants alike are drawn to the idea of putting capital behind an inspiring social entrepreneur, an innovative business model, or a transformative technology. for investment advisors, the excitement over these kinds of one-off investment opportunities presents a dilemma: how to combine them into a portfolio that satisfies an investor’s impact objectives while also meeting the investor’s risk and return requirements? though finance is itself a relatively new field, it offers some guidance on how to approach this novel challenge. modern portfolio theory (mpt), introduced by harry markowitz in 1952, gave investors a theoretical and mathematical toolkit for portfolio design.1 investors instinctually understood the value of diversification, but until the arrival of mpt, they lacked a systematic process for constructing portfolios that could deliver the highest expected return for the least amount of risk. mpt remains the foundation of the investment management industry today and offers impact investors a starting point when building portfolios that maximize both financial and “social” return for a given level of risk. building impact portfolios is the second paper in a two-part series on impact …

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