In our paper, Contracts with (Social) Benefits (forthcoming Journal of Financial Economics), we ask how private market contracts adapt to serve social-benefit goals in addition to financial goals. In particular we consider the potential impact of these additional goals on canonical principal-agent problems: first between investors and the fund, and, later, between the fund and the portfolio companies in which the fund invests.
To examine contracting for impact, we analyze a unique set of impact fund legal documents compiled by the Wharton Social Impact Initiative (WSII). Documents include private limited partner agreements (LPAs), private placement memoranda (PPMs), term sheets, and letters of intent. These documents are a window onto the rapidly growing sector of private markets, which by 2019 exceeded 13,000 deals and $33 billion per year (GINN, 2019). In addition to contract observations summarized below, our paper provides a novel descriptive account of the impact funds contributing documents, and of the sector itself.
