Rich heed call to underpin trend to impact investing
LOS ANGELES: The trend to invest in social impact projects is gaining traction in western democracies.
Some of Australia’s wealthiest people have formed an unlikely alliance, coming together to tackle the country’s most hard to solve problems – and deliver investment returns they would rather not brag about.
This month, the government pledged $100 million in the latest budget to fund an “outcomes fund” that will seed a market for social impact bonds alongside the states.
And now the biggest foundations in the country – including Paul Ramsay, Macquarie, Westpac, UBS Optimus and the Forrest family’s Minderoo – have joined forces to feed the pipeline and create social enterprises capable of both delivering catalytic change and financial rewards.
The federal government’s plan consists of two more, as yet unfunded, components: creating a wholesaler, backed by the country’s four major banks and Macquarie to make it easier for existing impact fund managers to attract investment; and a $100 million social housing fund.
The Macquarie Foundation is working with the Department of Social Services and White Box Enterprises on a three-year trial to create employment for people with a disability.
But for Macquarie, it’s about more than stumping up donations for “nice to haves”. Solving long-term unemployment and creating jobs is now core to its operating licence and a genuine business differentiator, that has the attention of its chief financial officer Alex Harvey (who chairs the foundation) and head of Asia, Verena Lim, to run it.
Paul Ramsay Foundation chief Ben Smith headed up a similar mission in the UK, which has laid the foundation for Treasurer Jim Chalmers’ impact investing vision.
“For a lot of the foundations, it’s very difficult to transition from giving a grant to an organisation to delivering it into a fund where you’re looking to return 15 per cent,” Smith says.
“There’s a transition there. And so unless you’ve got foundations or whoever it is with that provision of capital at the bottom end, you can’t create the supply for these bigger impact funds.”
Smith says the foundations can afford to generate concessionary level returns that allow the capital to be recycled through to philanthropic and impact investment efforts. At the other end of the spectrum, banks and superannuation funds can direct their capital into better-returning funds and housing projects.
“But below that, no one is addressing those social enterprises that do need capital, but can’t create market-rate returns and I think that foundations are ideally placed to be able to play that role,” Smith says.
Although investment returns can be small, the projects must have the potential for “catalytic impact” when it comes to resolving the most challenging social problems, such as long-term unemployment, human trafficking and child protection, as well as education.
“There’s this huge demand from social enterprises and for-purpose organisations,” Smith says.
“If we can get these foundations working together through peer learning, through looking at how they can share deals and through how they can co-operate and work together and learn from one another, then hopefully it means that more get involved in this space, and ultimately, provide more capital to these impacts organisations.”
Susan Sy heads UBS Optimus Foundation, which counts the Swiss bank’s global network of high net worth investors as backers alongside funds contributed directly by UBS.
She says UBS is working with other foundations to grow the volume of investible assets in a nascent pool across Australia.
“Whatever we do in providing initial funding into non-profit or social enterprise, we really want them to grow into a stage where they have the ability to actually receive investments from us, either loan or equity or other instruments that we may have for them to actually scale the impact that they’re trying to achieve,” Sy says.
Macquarie Foundation global head Lisa George said the $20 million set aside for impact investing would complement, rather than cannibalise, the foundation’s philanthropic funding.
“We do need to continue to give grants with no expectation of any return,” she says. “This is about sitting alongside those grants to unlock more social good, unlock finance as a tool for good and really crowd in other investments that are looking for some kind of return but with a social impact as well.”
Macquarie’s bankers – from Harvey to Lim and at all levels across the organisation – are invited to bring their expertise in helping grow and seed social enterprises.
“We get our staff involved as well, to help with some of that structuring because for some of these social enterprises it’s the first time they’ve done one of these impact investments,” Rose says.
The Forrest family’s Minderoo Foundation has put $250 million into a strategic impact fund to scale and accelerate its impact.
“It does this by investing in companies and funds that offer scalable impact solutions, while delivering appropriate impact-and-risk adjusted returns,” Minderoo’s head of impact investing, Jenna Palumbo, says.
Like Macquarie and UBS, Minderoo is just one piece of the capital stack that helps to entice other types of investor.