As Nesta announces its £25million social investment fund today, there are promising signs that HNWs and investors are seeing the value of social or impact investing.
Nesta, the charity which provides investment and grants for innovative ideas, today launches a £25 million social investment fund to support growing businesses tackling some of Britain’s most pressing social problems. Nesta Impact Investments will put money into social enterprises in the fields of ageing, young people and community sustainability.
The fund unites two areas of Nesta’s expertise: ‘This is the first time we’ve brought our social investment and venture capital work together and aligned it with other areas in which we’re funding innovation,’ says Joe Ludlow, director of Nesta’s investments team.
Social or impact investing has been increasing in value and prominence in recent years, but many HNWs remain sceptical of its potential benefits. There are a number of reasons for this, not least that an unfamiliar, unproven asset class is always going to leave individual investors wary. The Boston Consulting Group calculates that four social banks were responsible for 70 per cent of the £165 million social investment in the UK in 2010, and that only 5 per cent of investments were classed as equity or quasi-equity.
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Last year, Nesta published a report with Ipsos MORI and the Fair Banking Foundation on the readiness of wealthy people to invest in social enterprise. ‘When we first started to talking to HNWs,’ says Joe Ludlow, ‘we tried to explain social enterprise funds as a coming together of philanthropy and investing, but people found that really confusing. They understood “social enterprise” or “social business” much better. These enterprises have investment needs like any other, but they’re delivering their products and services to achieve a social goal.’
But there are signs the situation is changing. The UK’s history of innovation in financial services, coupled with its emerging philanthropic culture, means that many investors here are receptive to new styles of money management. James Wise is the portfolio director of the Social Business Trust, which brings together leading corporates to provide finance and support for social businesses.
‘In 2008,’ he says, ‘polled City workers said that their biggest concern was compensation. By 2011 – admittedly during the London riots – this became the feeling of connection to their community. Following the financial crisis and subsequent fall-out, and the change in the political atmosphere, people are realising that engagement with your community is increasingly important. At the same time, philanthropy is getting smarter. Charity donations and grants are falling in some cases, so there’s capacity for them to switch to revenue creation.’
An October 2009 survey of wealth managers conducted by EIRIS for Kleinwort Benson showed that more HNWs have expressed an interest in social investment since the crash, and that 30 per cent of wealth managers are more likely to offer it to their clients. It said that most HNW interest in social investing is from the entrepreneurial community.
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Many HNWs have specific social concerns; one advantage of social investing is that investments can be tailored directly towards the unique interests of individual investors. ‘A lot of HNWs will want to focus their investments on specific areas, and I don’t think that product has been fully developed yet,’ says James Wise.
‘But I’m hoping that over the next ten years we’ll see more traditional asset managers offering social investment as an alternative asset class. This sort of investing offers people the chance to invest in an area they really care about – whether that be education, healthcare or social care – and we can design a product really for them. There should be huge amounts of interest for this.’
Wise and Ludlow are relaxed about any tensions between charities or straightforward philanthropy and social investment. ‘There’s a whole spectrum of socially beneficial activity out there,’ says Ludlow. ‘That includes charities and social enterprises as well as business who have a social purpose at their heart. All of those organisations need capital.’
Wise agrees: ‘What we’re trying to do is build an asset class which draws money from people who otherwise probably would have invested it in more traditional asset classes. Where those traditional ones are under strain, we’re trying to build capital in that area.’
Neither is concerned about individual wealthy people exercising undue influence over social policy. ‘It doesn’t really matter what the broad interest groups are as long as you can prove you’re having an impact,’ says Wise. ‘As long as social enterprises can prove the value they’re having at the highest level, hopefully it won’t matter too much what background people are from.’
To ethically-minded HNWs, social investing offers a profound, growing and satisfying opportunity to make money while doing good.
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