Social/Impact Investment

Charity would appear to be big business these days. Google ‘Social Impact Bond’, ‘Social Investment/Impact Investment’, ‘Venture Philanthropy’ and you will receive thousands upon thousands of results; from big name charities, to lesser publicly-known foundations to banks and individuals and Governments. This is obviously the place to invest these days.

Even the European Union has the European Foundation Centre and at an Annual conference – all big funders were there Barrow Cadbury, Oak, Esmee Fairbairn as well as the bankers, hedge fund bankers – apparently nearly a $54 billion asset in Europe. A community consisting of the largest organisations, bankers, individuals – and it is growing fast.  A well-networked community is thriving on the rapid growth of Venture Philanthropy. Large Organisations, together with EU and Government funding, have taken over from the old days of foundations when they were created after a person’s death, out of their legacy, to be administered by their lawyers.

In years gone by, when after a person’s death, a foundation in their name was created to support a charitable concern and would continue with that legacy, fundraising and making lives better.

But today, at these kinds of annual conferences, the discussion leads more to staffing, governance and links with the academic world. It would seem more concentration is given to tax relief and ways of making money for these ‘donators’, then it would seem concentration on the charitable cause at hand. Why are so many concentrating on education?

Bankers are also present in the form of advisers to philanthropic donators. A number have created charitable foundations for their clients. Their clients make donations to the bank foundation, which passes it on to NGOs, universities, cultural and education organisations. These clients often do so anonymously and in large amounts. How do these NGO’s and charities know from whence their donations came?   The Bank may assure you it is an individual person – but who?

This is world-wide.

The image of an ideal foundation, a legacy left to build upon for a certain cause is now organised and has its own agenda.  The old style ideal foundation – a pile of money, a legacy, a bunch of nice people in charge, running costs kept to a minimum and an annual grant- making programme with fixed rules.

But today, costs appear high, and apart from tax saving and profits for donors/organisations, isn’t it also a clever way to influence, even control? If they are moving towards ending fixed long term strategies and move towards aligning with a fast changing world, having the ability to make decisions, to innovate and partner with whoever they want, what hope is there for the ordinary charity? It is true, the ordinary person can take out an ISA in a socially responsible fund or Ethical Stocks and Shares, but do you know where your money is going? How much is actually given to the charity? Which charity?

There is nothing wrong in wanting to make the world a better place, but the concern is how much influence, profit and control donors/organisations and social investment fund organisations establish. Capital investors providing funds, typically in the form of either a good return, by way of debt/quasi-equity or no return via instruments, such as grants. These providers include risk-return investors, individuals and institutional investors to philanthropists, foundations, charities, public sector grant givers and procurement contractors and public sector investment funds. The size of the social investment fund market – some have estimated over £500 billion.

The U.K. Government has also set up the Social Enterprise Investment Fund which provides investment to assist social enterprises delivering health and social care services. The fund management being the consolidation of the bulk of government capital in social investment in a single organisation – the Social Investment Business (formerly Futurebuilders) effectively building the social investment market. But has it been tested and an evaluation as to its impact and effectiveness?

Venture Philanthropists – Social Impact Bond/Investment – Impact Investing are just some of the headings you will find.

In general, the funding model of social impact investing is mainly investing in social enterprises and usually set up as a fund, or fund-like structure; allowing a mix of financial and social objectives and different funding instruments other than grants. But who is into this?

Nearly every large organisation/rich donor you can think of to mention.

The Social Impact Investment Taskforce was announced by Prime Minister David Cameron at the G8 Social Impact Investment Forum in June 2013. It aimed to catalyse the development of the social impact investment market.

GSG web site “Impact capital helps solve social and environmental problems while generating profit, directing resources at scale to the most successful programs. This not only generates financial returns for investors, but also enables innovative social and environmental ventures to achieve significantly greater scale than would be possible through traditional funding alone.”

So not only the Governments, but major foundations and banks are cashing in.

The UK is a pioneer in impact investing. Our financial institutions have long-recognised the importance of using their investments to generate a positive social impact as well as a financial return.

The challenge now is for industry to unlock the capital to boost impact investment even further, finding solutions to some of the burning injustices we face as a society, and helping make sure the country works for everyone.” Theresa May, Prime Minister

One of the biggest, Charities Aid Foundation (CAF) a U.K. charity that now owns and operates its own bank which offers services to U.K. charities. It also owns and operates CAF donate an online donation processing platform for charities, as well as CAF Financial Solutions Ltd and CAF Global Trustees Ltd. In 1924 the National Council of Social Service set up a Charities Department to encourage efficient giving to charity. This department was later renamed the Charities Aid Fund while the National Council of Social Service became the National Council for Voluntary Organisations (NCVO). The Charities Aid Foundation took its current name in 1974 when it was spun off from the NCVO as an independent organisation. Its projects include the CAF Venturesome, a high-risk investment fund, and Charity Bank, which became independent in 2002.

Even the Big Society, the use of dormant UK money held in banks and building societies has developed into the same system – Big Society Capital being the name of their Bank.

Encouraging donors, companies, organisations towards investing in good causes and establishing charities to a good end is, without doubt, to be applauded, but there are questions that arise.

Why are there so many organisations/foundations within the Social Investment Market? (According to the Office of Official Statistics there are approximately 167,972 charities currently in the U.K. with an annual income of £76.015 billion as at 31st March, 2018. 2,251, (1.3%) of these charities, have an annual income of over £5,000,000; £54.869 billion, (72.2% of the total number.) How much of that donated actually gets to the individual or cause hoping to be aided by the charity at the bottom? Why are costs so high? e.g., the Reclaim Fund (responsible for holding UK dormant accounts and wholly owned by the Co-operative) pays their Director £240K per annum out of the funds?

The Prime Minister of the United Kingdom only gets around £152,000 plus per annum.

The structure of the social investment landscape reflects similarly to the same structure of conventional capital markets – supply, intermediation, demand and profit.

So the last question is, who is actually most benefiting from a social investment fund?