In the last few months, Santa Monica real estate investment firm Turner Impact Capital celebrated the launch of a Las Vegas charter school campus it helped build and snapped up two new apartment properties where it will offer affordable workforce housing.

While those projects might sound like the work of a nonprofit, they’re part of a growing market for impact investments, ones designed to generate positive social and environment effects along with financial returns.

Turner was founded in 2014 by former Canyon Capital Realty Advisors co-founder Bobby Turner, who realized about 15 years ago that there was an opportunity to generate a return by investing in the gap he saw between social needs and the amount of money being invested to try and solve them.

The firm now has almost $750 million in assets and is not alone in chasing impact investments.

The movement has been gaining popularity in Los Angeles − billionaire Jeffrey Skoll and Toms Shoes founder Blake Mycoskie have made impact investments − and it’s gaining favor among groups as disparate as millennials and institutional investors.

“To me, these daunting challenges also represented generational investment opportunities,” Turner said. “When you have 1.2 million kids on a waitlist for a charter school, at $20,000 a school seat, that’s a $20 billion infrastructure opportunity.”

And the reach of impact investments is certainly not limited to the United States.

A skyrocketing global population, need for increased food production, widespread poverty, drought and lack of affordable health care and housing are all challenges in need of capital, said Fran Seegull, an adjunct professor at USC’s Marshall School of Business and chief investment officer of ImpactAssets, a Bethesda, Md., nonprofit impact investment firm.

“Increasingly, there’s an acknowledgement that grant capacity and government aid alone are not enough to move the dial on issues,” she said.

The sector is growing in popularity in Los Angeles, said Seegull, thanks to a growing willingness on the part of wealth advisers and investors to consider these investments that focus on a double- or triple-bottom line.

“What you’re seeing (in Los Angeles) is tremendous growth, even compared to five years ago,” she said, pointing to new practices at large wealth adviser platforms such as Goldman Sachs, Morgan Stanley and Merrill Lynch. And local wealth advisers have been starting specialty practices after being told by their L.A. clients that they want impact investments.

Then there are people such as Turner, the former chief executive of Century City real estate investment firm Canyon Capital Realty Advisors. Since starting his own firm two years ago, his three funds have become some of the biggest in the country focused on this space, not to mention a huge part of L.A.’s small but growing impact investing scene.

The sector as a whole is healthy, too.

In 1995, just 55 funds with combined assets of $12 billion had integrated environmental, social and governance criteria into choosing investments. By 2014, those figures had ballooned to 925 funds managing $4 trillion, according to the Forum for Sustainable and Responsible Investment, a Washington, D.C., trade association representing investment management and advisory firms, mutual fund companies, pension funds and others.

Certain data suggest these types of funds are performing well.

There’s Boston-based Cambridge Associates’ impact investing benchmark, a group of 51 private equity and venture capital impact investment funds, which showed that as of 2014, funds launched between 1998 and 2004 (those with largely realized returns) have performed as well if not better than conventional private funds. The pooled internal rate of return for impact funds launched between 1998 and 2001, for example, was 15.6 percent versus 5.5 percent for conventional ones. The return rate was about equal for funds launched between 2002 and 2004.

On the public side, the MSCI KLD 400 Social Index, comprising firms that meet high environmental, social and governance standards, has outperformed the S&P 500 on an annualized basis by 45 basis points since its inception in 1990 to 2014, according to a Morgan Stanley report from last year.

Seegull added that even more institutional players could enter the space due to guidelines issued last year by both the Department of Labor and the Internal Revenue Service that allow private-sector pension plans and foundations to take impact factors into account when making investment decisions.

Capital evolution

So how did this start?

In the 1970s, a small group of investors started removing from their portfolios investments seen as having a negative impact on society. Gone were stakes in alcohol, tobacco and firearm makers – a process referred to as negative screening.

By the 1990s, Seegull said some mutual funds went even further and began screening companies for positive characteristics – positive screening. Today, big names such as Vanguard Group Inc. and BlackRock Inc. offer such funds.

“It’s a field that has evolved dramatically over the last decade or so, and not just in terms of the funds available but also the metrics that are used to evaluate these investments,” said Richard Jones, a managing director at Merrill Lynch Private Banking and Investment Group in Century City, who has seen impact investing become increasingly important to the high-net-worth clients he serves.

Metrics are very important to Core Innovation Capital, a social impact venture firm in Hollywood that seeks “extraordinary” returns while investing in tech companies making financial products that could help lower-income Americans. Its metrics include a goal of saving 10 million low- to moderate-income people about $50 a month through the products and services offered by its portfolio companies, said Arjan Schütte, founder and managing partner.

Core’s $50 million fund, which launched four years ago and has a 10-year term, has invested in companies that have already reached 11 million people and is halfway to the financial portion of the goal, he said.

Local players

While L.A.’s impact investing community isn’t as robust as the one in San Francisco, it’s definitely growing.

Schütte moved here several years ago from New York. While it’s also closer to his wife’s family, Los Angeles boasts a greater variety of financial tech companies, such as Pasadena smartphone payments provider Wipit Inc., in which Core has invested.

For Schütte, social impact has been a narrative thread running through his career since he started developing educational software in the early 1990s.

Bobby Turner took a different path, coming to impact investing later in his career when he found that making money didn’t make him happy and that the millions of dollars he was giving away to philanthropic causes only seemed to be funding Band-Aid-type fixes. He realized that market forces needed to be harnessed to create sustainable, scalable solutions to issues such as education, housing and health care.

For example, his Turner Multifamily Impact Fund buys housing developments in low-income neighborhoods and rents them to the local workforce while allocating a small number of subsidized units to teachers, law enforcement officers and medical providers. In exchange, those professionals must provide tutoring to residents, park their squad cars on the property and patrol the grounds when off duty or staff an infirmary that operates on-site after work hours.

The idea is to improve the quality of life for renters by giving them much needed services that incentivize them to keep their leases longer, thereby cutting down on expensive turnover. And a law enforcement presence can also cut down on insurance costs. Unlike many developers, Turner’s goal is to turn a profit without pouring money into a sleek renovation, jacking up rents and pulling in higher-income residents from outside the community.

Turner said the fund’s properties have delivered hundreds of hours of education, health care and security services and programming. He added that they’ve seen a 7 percent increase in resident tenure, an up to 25 percent reduction in economic vacancy and a 15 percent savings in electricity consumption.

Though he declined to disclose financial returns, Turner said his funds achieve superior risk-adjusted returns. That means they typically underperform those of more traditional opportunistic funds during a bull market, but outperform in a bear market because there’s no speculation on demand.

Allocating impact

On the advisory side, an increasing number of wealth managers from small and large firms alike are embracing some form of impact investing.

While many advisers offer to negatively screen their clients’ portfolios, some place their clients in publicly traded positive screening funds while others offer access to private funds making more proactive investments.

Santa Monica financial advisory firm Abacus Wealth Partners takes this one step further by specifically focusing on sustainable and impact investing as a part of the overall solution for its clients’ needs. The firm simultaneously serves clients who have very little to invest as well as those with billions of dollars. It advises them on a range of impact investments, including index-style funds screened to include sustainable firms within each sector, said Chief Executive Brent Kessel.

A former mortgage broker, he got into financial planning after a reflective 1995 trip to India that caused him to take stock of the mark he would leave on the world.

“All I could see were a bunch of strip malls and single-family tract houses,” Kessel recalled. “I got super depressed.”

Kessel now also advises Abacus clients on social private equity funds that invest in private companies focused on social or environmental good. Abacus’ best performing investment to date is a social private equity fund that Kessel said has achieved 27 percent annualized returns since 2006.

One company receiving money from a fund in which Abacus clients have invested is Nairobi’s M-Kopa, which allows low-income Kenyans to use and ultimately buy solar power systems by enabling micropayments through their mobile phones. The payment frequency and amounts mimic buying patterns for kerosene, on which most of these Kenyans rely when not connected to the electrical grid. One of Abacus’ funds invested in a debt facility to help expand M-Kopa’s dealer network.

Abacus also partnered with San Francisco wealth management firm Aspiriant to form Align Impact, which specifically advises on impact investment strategy for clients who generally have at least $3 million to invest. Align helps clients parse their values, determine where and how they want to make a difference and what investments can help achieve those goals.

Kessel said there are a lot of foundations and donor-advised funds that are clear about their grant strategies but haven’t integrated their investment plans.

“They’re working on childhood obesity and health care issues for disadvantaged kids in L.A.’s lower-income neighborhoods, but in the stock portfolio, they have every fast-food and soft-drink company,” he said.

Tom De Simone, chief executive of downtown L.A. community development financial institution Genesis LA, said he’s received calls from private wealth managers wanting to invest in Southern California organizations such as his, which have traditionally relied on federal funding, capital from foundations and financing from banks.

“We’re starting to lay the groundwork to explore it as an option,” De Simone said of the potential funding stream.

Driving force

People and groups looking for that kind of socially responsible return run the gamut. Turner said his funds’ investors include big corporations such as Citibank, endowments from schools such as the University of Michigan as well as family foundations, including the Rockefeller Brothers Fund.

“The wealthier the client the more interested they tend to be,” said Steve Sherline, the downtown L.A.-based regional market leader for U.S. Bank’s private client reserve. While some are trying to cultivate a legacy, others have seen every investment strategy on the market and are looking for something unique.

Sherline voiced the common refrain that millennials are driving some of the interest.

“They’re willing to do crowdfunding with no regulation, semiphilanthropic bets on villages in Africa, clean water in India,” Sherline said. “They want to be associated with groups and part of a theme.”

While Schütte says young, wealthy investors might be interested in these investments, he doesn’t see millennials as a major factor in their growing popularity.

Institutions such as Goldman Sachs, investment and retail banks and insurance companies make up the majority of Schütte’s investors. While some have philanthropic motivations, others have strictly commercial interests and some are strategic players that just want a peek at innovation.

“I’ve got well over $100 million under management and none of that comes from millennials,” he said.

Risk profile

Yet this type of investing might not be right for everyone.

That’s because private socially responsible investing opportunities might be smaller and less liquid than others – by say, investing in a startup – and could lock up someone’s capital for about five years, said Ken Robbins, a D.A. Davidson & Co. financial adviser and senior vice president based in downtown Los Angeles.

Robbins, whose clients typically have between $250,000 and $5 million in investable assets, explained that investors would need to figure out whether that kind of illiquidity is something they can afford.

More often, Robbins has seen his clients opt for mutual funds offered by large financial institutions doing either negative or positive screening. He said the one problem with such funds is that they might not be tailored to an investor’s exact values.

Whatever route a client might take into impact investing, Robbins said it’s important to thoroughly vet each opportunity from a business perspective.

“You’re thinking about your values, but you also want to put your businessperson hat on and say, Do they have the right kind of financing?” Robbins said. “How much debt is there? Is this just a conceptual investment or a real business?”

As part of that due diligence, he encourages investors to look beyond the fair amount of PR involved in this type of investing.

“They’re obviously trying to look like the good guy,” Robbins said. “That’s not a bad thing but you have to ask some hard questions.”

Some investors have struggled with whether they have to compromise on returns in order to express their values, said Andrew Palmer, a senior managing director at Century City wealth management firm Bel Air Investment Advisors, which serves clients with $20 million or more in investable assets.

“Until recently, it was more of a limited universe, and there was a higher cost to being a company that had social or environmental good as part of its mission,” Palmer said. “Now we’re getting into a time where being a responsible company is actually becoming more attractive and valuable … where it’s good business to do the right thing.”