One Social Investment Market. Eight Questions. Answers to Follow …

As the summer holiday season draws to a close, our focus moves from how to occupy the children to the opportunities and challenges that lie before us in the emergent social investment industry.

2011-12 was a heady time – the Big Society Bank (renamed Big Society Capital) was established and made a quality start. The ‘Outcomes-Securities’ market gathered momentum, with more social impact bonds and similar investment propositions being developed by a range of central government departments and local authorities. The early-stage social venture funding market also developed apace, with seed initiatives such as the Big Venture Challenge and Big Lottery Fund’s Next Steps, help for investment readiness with the Social Investment Business Investment & Contract Readiness Fund, the establishment of new funds such as FSE’s Social Impact Co-Investment Fund, and the fund-raising success of existing players such as Big Issue Invest Social Enterprise Investment Fund. Innovative new social investment products were launched, such as the Scope Bond. The democratic finance movement gathered momentum and a number of exciting new investment intermediaries were launched, such as Abundance. The Cabinet Office have done their level best to support the stimulation of this market with a number of thoughtful interventions.

Beyond the social investment market, the ‘breakthrough capitalism’ agenda continues to gather steam, with a general desire from the financial services industry to address the questions that surround it over whether it is to be something socially value-creative or socially value-destructive.

After the sugar rush of so many new initiatives, we should expect a come down as reality starts to bite. The truth, of course, is that setting goals doesn’t solve any issues – achieving them does. The really hard yards lie between the two. And the most difficult time is now, when the rubber hits the road as we set about achieving the goals that we have set ourselves.

As so many of us now crank through the gears, here are a few of the questions that will need to be tackled head-on in the coming year:

  1. Will Big Society Capital (BSC) be able to resist the pressure to deploy its investment capital too quickly? If it is to succeed, BSC must refuse to invest in propositions that have weak financial, or weak social impact, characteristics. In what is still an embryonic market, this will require patience in the likely face of impatience and pressure from many sides. How strong will they be able to be?
  2. Will Government be able to operate as an investment counter-party? Outcomes-based securities represent a major opportunity for market growth. But this requires government to have genuine openness to ideas from outside, and a willingness to relate and compromise in order to align taxpayer/social interests with investors. To do this, government commissioners will need to operate in new ways which run counter to current practice and culture. Will they be able to change?
  3. Will social enterprises be able to build the financial expertise to enable them to sensibly contribute to the discussion? Whilst there are exceptions, all too often social sector organisations with expertise and track record in delivering the social value we all seek are not ‘investable’ for repayable risk capital – they do not know what they do not know.
  4. Will social venture funds find the dealflow to make a significant social impact in the short to medium term?
  5. Will the social investor community be able to avoid alienating either the financial investment community or the social sector? Social investment requires a combination of two distant and alienated cultures – financial investment on the one hand, and expertise in achieving human or social outcomes on the other. Blending the two is tricky and risks alienating one or the other – or, for our sins, both.
  6. Will Treasury engage with the emerging social investment sector as the Cabinet Office has? Without the full engagement of Treasury, social investment may struggle to achieve the policy and practice alterations required to deliver a meaningful marketplace.
  7. Does the Social Investment marketplace have a role to play with public sector spin-outs, and if so, what? At a time when emergent ‘social businesses’ are generally early stage and high risk – lacking both scale & track record – can the scale and track-record of public sector spin-outs be married to the social and financial objectives of social investors to create scale & momentum?
  8. Will the Social Investment sector manage to find the language to talk to anyone other than itself? Those striving to make this marketplace happen tend to have first-hand experience of the frustrations of trying to bring about change in the context of the alienation in our society between the financial and social sectors. This alienation is reflected in the media, who do not know whether to talk about social investment as a social story or as a financial story. It could be ‘both’, but right now it is ‘neither’. If this continues, investor demand will remain weak. But if we crack it ….

If we cannot find answers to these and other big questions, then BSC risks coming under intolerable pressure, and the social investment marketplace risks remaining the size of a rounding error when compared with public spending, financial investment and even charitable giving.

Game on.

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