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Continuing the ‘Who is the social investor?’ series of posts.  Please also have a look at the Introduction and part 1, on High Net Worth Investors.

Charities and family foundations are, in my opinion, a surprisingly reluctant but potentially very powerful group of social investors.  Historically, there has been a disconnect between the charities themselves and the financial institutions that manage their endowment funds (as illustrated by September’s furore over Church of England investments and short selling) and sometimes an absolute conflict between an organisation’s charitable activities and its investments (see, for example, this article on the Gates Foundation’s indirect investments in PetroChina).

Since the fiduciary duty of the ‘financial people’ is to maximise financial return on a charity’s investment it is quite possible and has indeed happened that a charity’s work will be funded by dividends on shares in a company whose activities are entirely in contradiction to its own.  An extreme (and made up) example would be a lung cancer charity being funded by dividends yielded on an investment in BAT or Philip Morris.

The idea that seems gradually to be gaining traction is that these charities and family foundations ought to “use a portion of of their endowment in support of the change they set out to create- their mission” (see the nef report “Mission Possible: Emerging opportunities for mission-connected investment“).  For example, the lung cancer charity previously mentioned could divest itself of tobacco stocks and instead invest in healthcare related businesses.  In some cases this will mean a lower financial return for the charity, but not in all.  Example charities that already practice mission aligned investing are the Sigrid Rausing Trust, Big Invest (on behalf of Big Issue) and the Esmee Fairbairn Foundation.

In October 2007 ebay launched Microplace, a peer-to-peer (P2P) online lending platform regulated by the Securities Exchange Commission (SEC), the US equivalent to the FSA*.  Unlike at Kiva  (see my last post on Kiva), Microplace lenders can earn interest of between 1% and 4% on each loan… the mantra of the site was (when I first looked at it) ‘earn financial returns while having a positive impact’.  This has been since been distilled down to ‘Invest wisely.  End poverty.’  They make it sound so easy!

Microplace’s model varies from Kiva’s in one other, very significant, way: It securitises the debt before selling it on to the investor, meaning that risk is diversified.  This difference in business model comes across very clearly in the branding; at Kiva you really feel like you are connecting with an entrepreneur, whereas at Microplace you feel like you are making an interesting and innovative investment, but not necessarily a ‘human’ one.  Less of a fuzzy feeling, more of a financial return… will this always be the way?

*P2P lending sites are going through tough times at the moment, with US based companies Prosper and Loanio falling foul of SEC rules.  The problem is that these companies didn’t register as companies that sell investment products, but tried to get away with being unregulated matchmakers.  However, since ‘the intention for lending [on these sites] is to expect a certain rate or return’, the SEC categorises Prosper and Loanio loans as an investment, meaning that both sites must register with the commission before they can resume operations (another US P2P lending site, Lending Club, has done this successfully).  Microplace is already registered with the SEC and Kiva, given that it doesn’t ‘do’ interest, is exempt.  Phew.

It’s easy.

Well, that’s an exaggeration but it seems easier at the moment to ‘invest’ in Pakistan than in Peckham. Much of this funding innovation is thanks to two parallel trends in two very different parts of the world; the establishment of microfinance as an alternative to aid in the developing world and the rise of the silicon valley entrepreneur in California. And Kiva.org is probably the most successful offspring of these two trends. Read more

Nimble, but elusive

High Net Worth individuals (HNWs), unlike other investor groups, are free of fiduciary duties to shareholders and the need for board or committee approval. They are therefore nimble investors, but elusive.

Generally defined as people who possess investable assets worth over US$1million, HNWs have long been important figures in the world of charitable giving. However, they are no longer just donating, they are also investing for social return; a form of philanthrocapitalism. Read more

A few weeks ago, I signed up to a feedreader, and it changed my life.

1.) It’s made it easier. For those who don’t know, a feedreader is something that aggregates all the most recent postings from blogs that you’ve selected as favourites. Having one means that I can just go to one site and read everything that I want to read (and a few things I don’t), and then get on with the stuff I really ought to be doing each day. Read more

No-one really knows that much about the social investor.

After two years of working in the social investment sector, I can say (without numbers but with certainty) that social investors are an increasingly diverse group of people, ranging from first time investors to big institutions. While this collection of investors all share an expectation of both a financial and social return on their investment (or do they?), their motives for seeking the social return are many and varied. Read more