James Perry of Panahpur explains why his charity has taken its portfolio out of the mainstream stock market.

Social investment, right now, is a pain. This is because it is an emerging market with all the associated complications and inefficiencies. The reality does not match up to the rhetoric. On the investee side (the people trying to raise social investment), the finance on offer is often not what is needed. On the investor side (the people looking to invest), it is often hard for charities to make the capital available in a way that is consistent with their charitable duties.

So why bother? Well we can all see that the social contract is under increasing stress. Government has run out of money. Financial markets and business have outsourced social responsibility to governments. Civil society and charities are squeezed between these two, and are suffering as a result.

And yet charities are the key to unlocking so much social value – because they are best placed to address, even solve, social problems. But they can’t because they have no scalable access to capital. Which is a crazy way to organise a society.

Panahpur set out on the social investment journey eight years ago. We started with programme-related investments – for example, we lent a children’s charity £100,000 to prevent it from going bust, and supported the management team to turn the charity round. By the time they’d repaid our loan in full (which took six years), they were four times the size and delivering outstanding outcomes. Big bangs for (in the end) no bucks.

But it was also high-engagement and complex. So now we make most social investments indirectly, through intermediaries, which is easier for us and more relevant for others. In this fast-emerging field, it is becoming possible to do this as an investor across asset classes. In fixed income, there are more and more charities issuing bonds. This lowers their overheads while offering us a sensible risk-adjusted investment return. For cash, there are ever-more deposit options from ethical banks. For real assets, there are more and more social investment funds such as Resonance’s Real Lettings Property Fund, a partnership with St Mungo’s. For private equity, there are funds like Big Issue Invest and Bridges Ventures.

Social investment is no golden bullet. It is by no means relevant to all charities. It has a long way to go to match the rhetoric. But it is 100 per cent aligned to the long-term strategic interests of the charity sector. And as time goes on, it will become more accessible to more charities. So I urge you to reserve judgement and stay tuned.

James Perry is chief executive of Panahpur