Impact Private Equity - The Importance of Performance Measurement to Signal Legitimacy and Avoid Mission Drift in Emerging Funds

Abstract: This paper elaborates on the research of performance measurement systems in the private equity field. By conducting a qualitative single-case study of an impact investment firm, this paper investigates the limitedly researched field of what role performance measurement systems play for emerging hybrid organizations, operating in a setting where the financial logic is inherently strong. Through the theoretical lens of institutional theory and structural differentiation, the study indicates that performance measurement has a vital role in gaining legitimacy towards potential investors and reducing the risk of impact washing. Our paper proposes that 1) organizations can make an effort in designing the performance measurement system in a way so that the logic that is traditionally non-dominant in the field becomes more dominant, to avoid the traditionally dominant logic in the field taking over, and 2) using performance-based managerial compensation is an option for hybrid organizations to avoid mission drift, but that it should be based on all relevant logics to the organization.