New sources of capital for the UK social investment market are likely to be local authority pension funds, charities with large endowments and housing associations, says a new report.
The report, New Specialist Sources of Capital for the Social Investment Market, was commissioned by the Social Investment Research Council, a coalition of bodies interested in social finance. It examines eight institutional investor groups' appetite for social investment over the next five years.
It finds that all the investor groups examined – charities, corporations, housing associations, faith-based organisations, family offices, pensions funds, and university endowments – feel there is potential to increase their social investment activity over the next five years.
However, the research highlights that these investors approach social investment in different ways; emotionally or rationally.
While some saw social investment as an alternative to grants and will only engage if the investment supports innovation, despite higher risk, other investors were more commercially-minded and preferred social investments that were similar to existing financial deals.
The research found that charities, corporations, family offices and housing associations were most likely to engage in riskier social investment deals in the coming years. Charities, family offices and local authority pension funds look likely to engage with more commercially-focused social investments.
It says its analysis suggests that some charities will be keen to use social investments as a tool to help deliver their missions at the riskier end of social investment, while other charities with sizeable endowments will consider backing more established social investments.
It says corporations will see their potential social investments as part of their CSR programmes.
However, while the report identifies appetite for social investment among institutional investors, it warns there are barriers to engagement.
The report recommends reviewing the use of charitable foundations’ capital for programme-related investment and identifies a need for practical support for charities to do so, to help raise new risk capital for social investment.
In order to attract institutional investors at the more commercial end of the social investment market the authors highlight a need to improve awareness of mainstream investment opportunities, establish a single place for tracking fund performance, and create functionality to ‘tag’ social investments within commonly used financial tools.
“Increased experience sharing, improved data collection of deals done outside social investment funds and asset owners mandating fund managers to consider social investment would benefit efforts to raise finance across the market as a whole,” it says.
Commenting on the report, Nick O’Donohoe, chief executive of Big Society Capital, said: “The growing number of investors interested in achieving social impact as well as financial returns means that there is a real opportunity to unlock a significant amount capital for charities and social enterprises. We need to work collaboratively with these new investor groups to remove the barriers and turn interest in social investment into action and impact.”
