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Obama looks to UK while launching $1bn 'impact investment' fund

1 March 2011

'If the US government is coming in on a first-loss basis than it is quite an interesting way forward because it means that the private investor is not as concerned with the risk'

 

Malcolm Hayday, CEO of Charity Bank

A flurry of social investment news is coming from across the pond with a $1bn impact investment fund for deprived areas and the possibility of a US variation on the Social Impact Bond.

The $1bn Impact Investment Fund, announced as part of a drive by the Obama administration to promote entrepreneurship, will see government backed bonds used to provide match finance on a 2:1 basis to organisations that fund companies in economically distressed areas and emerging sectors such as clean energy.

The details of how the fund will work are not expected for another couple of months but the fund is believed to be based on a proposal called the Enterprise Innovation Fund – a public private partnership which supporters have been campaigning for since 2009.

Mark Beam, concept co-author of the Enterprise Innovation Fund and senior advisor to Halloran Philanthropies, said he was given confidence that the money would deliver on social and environmental targets by the use of ‘Impact Investment’ in the title of the fund.

Beam said: ‘Until we have the details we don’t have an idea how wide ranging it will be but the fact they’ve used the terms clean tech and underserved communities [in the announcement] gives us great hope that it will include key things mentioned in our proposal.

‘I’m confident they understand what we mean by impact investing but if the details are in sync with some of our thinking it will be a very large iconic moment in terms of government support for the sector.’

One of the details which is yet to be discovered is whether the US government as well as investing $2 for every $1 attracted from the private sector will also act as an underwriter, taking the first hit if an investment goes wrong.

Malcolm Hayday, CEO of the UK’s Charity Bank, said that if it were to do this it would make it an interesting tool for attracting new money into social investment and establishing a track record – something which is largely missing at the moment, which means all social investments, perhaps erroneously, are labelled ‘high risk’.

‘If the US government is coming in on a first-loss basis than it is quite an interesting way forward because it means that the private investor is not as concerned with the risk,’ said Hayday.

On the possibility of the UK government running a similar fund, Hayday said: ‘I think there would be resistance from the Treasury because it would appear on public sector expenditure figures but the bonds are a good idea and something that should be explored further over here and could be something that makes the Big Society Bank money go further.’

Hayday also said it would be interesting to see if the $1bn fund attracted pension funds, thus potentially unlocking a vital new source of money for social investment.

This is something that co-project manager of the Social Stock Exchange Mark Campanale has hopes will happen.

Campanale said: ‘There is a strong tradition of social investment from banks in the US as a result of the CRA [Community Reinvestment Act] and so there are committed pools of capital from organisations like Prudential, Deutsche Bank, JP Morgan. There is also institutional interest from pension funds such as TIAA CREF and charitable foundations making mission-related investments. They can take up these bonds and make the scheme a success.

‘What would be interesting to see is if there could be a match fund for new, privately funded social investment initiatives across a European level. When new impact funds are launched by social investment managers, it is often tricky finding that first investor.

‘Like this new Obama initiative, governments in Europe could take a catalytic role by agreeing to cornerstone social investment funds’

In other news from across the pond, the Rockefeller Foundation has given a grant to the Nonprofit Finance Fund to develop ideas for Social Impact Bonds for the US market.

Among other resources it is using Social Impact Bond video, produced by Social Enterprise, Society Media and Be Inspired films for the Good Deals social investment conference, as a way of introducing a US audience to the concept.

And, according to both the New York Times and the Wall Street Journal, the White House is supposed to be working on a $100m pilot program for the Social Impact Bonds (SIBs).

Toby Eccles, development director for Social Finance, the organisation that pioneered SIBs, said he was ‘amazed’ by the level of interest in SIBs in the US.

‘We’re eager to see what President Obama comes out with,’ said Eccles, adding that there was also interest in the SIBs from Canada, and the Australian government has committed to launching them.

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Comments

Correction to the article.

The article above states the fund is believed to be based on a proposal called the Enterprise Innovation Fund. This is not the case. We think we had an influence in their decision to create an "impact investment fund," but our proposal recommends the creation of an equity fund. We do hope the SBA will incorporate some of the philosophy, concepts and intent behind the proposal but enough details have not been yet been released to determine whether this will be the case.

 

mark beam

halloran philanthropies

Early indications

Around November 2008 as a presidential candidate Obama had announced plans for a $3.5 billion social investment fund "paid for by closing tax loopholes and ending the war in Iraq'

http://www.socialedge.org/blogs/dr-o/archive/2008/11/12/obama-promises-social-entrepreneurship-agency

At that time both he and VP Joe Biden were on the Senate Committee for Foreign Relations which Biden chaired.

Two years earlier, plans for a matched social investment fund had been proposed as part of an international development initiative. It suggested a soft power approach using what was then being spent in Iraq weekly spread over 5 years.

http://en.for-ua.com/analytics/2007/08/09/110003.html

It's worth reading in the context of this news and the evolution of a new kind of capitalism because it was delivered by a British social enterprise.

Jeff Mowatt
People-Centered Economic Development

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people-centered.net