Institutional investors, such as pension fund managers and private equity firms, are more likely to engage with social investment if it offers market or close-to-market returns, according to a new report on investor appetite for social investment written by social business consultancy ClearlySo.
The report, Investor Perspectives on Social Enterprise Financing, involved 55 interviews with institutional investors such as pension funds, banks, private equity firms, independent financial advisers and charitable foundations.
It found that investors are more likely to engage with social investment if it can offer an expectation of market or close-to-market returns, along with guaranteeing or mitigating risk while approaching market level returns.
Further, investors would prefer liquidity, which helps to reduce perceived risk; robust measurement of social returns generated by the investment; large investment opportunities through pooled funds; and products and managers with a track record in which City institutions can develop confidence.
Katie Hill, ClearlySo’s research author of the report, said at its launch, that there was also optimism, as all types of investors interviewed had an interest in social investment, although there was to date little activity in the market.
She added that protection from risk was the most important factor for investors thinking about social investment.
In response, an audience member asked whether philanthropic funders would be wiling to guarantee social investments to get the market going.
Hill said foundations were interested in acting as guarantors for social investments to engage the commercial market, but she added: “They are keen that these investments are replicable, there is an exit strategy, and it is not a long term prop-up mechanism.”
On the issue of large-scale social investment opportunities, Hill said there was a real opportunity for public sector spin-outs to engage institutional investors:
“This offers large-scale opportunities in public sector contracts,” she said. “With the arrival of the public services white paper, we need to seize this moment to accelerate social investment.”
She added that investors definitely wanted to know the social impact of an investment, but they were less clear about what an organisation needed to capture: “It is important that we define what investors want to know,” she said.
The report, jointly commissioned by the City of London Corporation, City Bridge Trust and the Big Lottery Fund, and authored by ClearlySo, provides an insight into the attitudes of different kinds of institutional investors towards social investment.
