A review setting out the steps necessary to create a mature, thriving, social impact investment market from a ‘bottom-up’ perspective.
This review sets out the state of play in providing capital for the social sector and puts forward practical solutions for its sustainable funding. Today’s social impact investment market is sufficiently evolved to see the interface between commercial institutions and the social sector become better informed and better understood:
• This is an emerging market that has passed a watershed with sufficient investment track record building to start attracting mainstream investment.
• It is a growth market. The social sector that produces so much public good, and which could produce more, is undercapitalised. An expanding new generation of social entrepreneurs is combining the values and motivations of the social sector with business acumen and they are proving their ability to use investment capital to increase their social impact and make their organisations more robust and sustainable at the same time.
• The social sector, to maximise its potential for creating social benefit, needs a greater choice of capital suppliers and a broader range of funding products of different types and maturities. These products need to occur within an integrated capital market, which is able to bring together appropriate layers of risk capital with both development funding and working capital, and where speed to market and simplicity are often the virtues of successful funding transactions.
• The social impact investment market is primarily an intermediate capital market, where investment capital has overlapping characteristics of equity and debt. Loan capital has a significant role to play alongside quasi-equity products, and philanthropic capital that is invested in organisations is a valuable enabler in attracting commercial investment capital.
• Social impact investment can offer investors sustainable financial return, assessable risk and the potential for diversification. It combines the UK’s record of a well-developed, not-for-profit, charitable and voluntary sector with its historic strengths in financial services.
This is an opportunity for social purpose organisations to secure sustainable, predictable and appropriate sources of funding as they increase their commercial discipline. Equally, for the financial services sector the opportunity is to mature a new alternative investment class with a large potential for growth and investment in new early-stage growth industries such as long-term care, preventative health and rehabilitative skills and training. The UK should have a leading role in this exciting new emerging market and could be an unparalleled global centre for social impact investing.