Private equity giant TPG is launching a new company that measures the social impact of a $228 billion investing market

• Better research in impact investing will spur big investors into the space, says U2 frontman and global philanthropist Bono.
• The private equity fund Bono co-founded with TPG, which seeks to do good and make money, seeded a new organization called Y Analytics that aims to measure the non-financial side of investing.

Impact investing, one of Wall Street's hottest strategies in private equity, purports to make money while improving the world. But while financial returns are easy to explain, changing the world is proving much more difficult to quantify.

In 2018, the Global Impact Investing Network counted $228 billion in impact investing assets, double the amount a year prior.

Despite the growth, some investors are still wary of the strategy, concerned that they will give up some financial returns in the pursuit of doing good. Others think of impact investing as just another form of philanthropy.

To allay these concerns, private equity firm TPG is teaming up with U2 frontman and global philanthropist Bono to prove that if big investors can be persuaded of the impact their money is making on the world, even more capital will flow to the space.

On Wednesday, they announced a new company called Y Analytics, which uses third-party research to measure social and economic change created from investments. Headquartered in Washington DC and led by former McKinsey partner Maryanne Hancock, Y Analytics is meant to act as an intermediary between researchers and investors.

Hancock said in a statement that the group will build tools to predict, underwrite, and manage impact, and share that knowledge with the public. Such knowledge will drive institutional investors' confidence in the strategy, Bono said.

"If capitalism is to be a force for good, we have to be able to measure when it's doing good and when it's doing harm," he said in Wednesday's statement. "Fuzzy thinking just won't cut it. We need cold hard facts - that's what Y Analytics has been created to provide."

Right now, TPG's Rise Fund is a client of Y Analytics, which is set up for private markets investing and could be used by other groups, including governments and nonprofits. Eventually, Y Analytics' research could also be applied to public markets.

Other investors in the impact space said they welcome more efforts to quantify outcomes. Stuart Dunbar, a partner at Baillie Gifford, a $221 billion British firm that runs a social impact-focused equity fund, said measuring the social consequences of the fund is the strategy's biggest challenge.

Y Analytics "is a genuinely worthy endeavor," Dunbar said.

Other private equity players wading into the impact space have worked with a variety of third parties on impact measurements. KKR, for example, has partnered with nonprofit Business for Social Responsibility and uses a third-party reporting framework, the Sustainability Accounting Standards Board, in addition to its internal research, the firm said last month.

Institutional Limited Partners Association spokeswoman Emily Mendell said institutional investors are seeing more impact investing options than ever before - but lack of reliable research continues to be a hurdle.

"For those who need to make the case for impact investing to their trustees, this is a huge pain point," Mendell said. "Measuring returns in metrics that investors can understand will go a long way towards making a good case for an impact investment."

ILPA, which represents about 450 groups that invest in private equity, has advocated for data standardization and transparency in a number of areas.

"This information can only help investors make better decisions, so we are supportive of the effort here," Mendell said.