Skoll 10: Philanthropy pound key in social investment's 'powerful' future

The philanthropy pound will be key to making a wide variety of social investors happy says the global head of research at JP Morgan.

Nick O’Donohoe told the Skoll World Forum on Social Entrepreneurship that there was no such thing as a ‘free lunch’ when it came to social – or ‘impact’ – investing.

He advocated investment structures where philanthropists took a lower return so as to bring in other investors who would want to take a market-rate financial return.

‘I believe subsidised returns are going to be a big part of the future of the field in terms of structuring investments that can keep both sides happy. But that’s not the same as having your cake and eating it too or getting a free lunch – that subsidy is coming from foundations.’

O’Donohoe was arguing against the proposition that social investments could deliver market returns. He said this was possible but ‘rare’.

He also said that often investors didn’t recognise that they were making a financial trade off.

‘People walk into us with the idea of investing in microfinance and say to us that their target IRR (internal rate of return) is 15 per cent. If I’m going to invest in a fund, as most microfinance is, of start-ups in emerging markets 15-20 per cent is not a reasonable rate of risk-adjusted return.

‘You would benchmark it against start-ups which is 30 per cent or more so you’re making a social trade off –you may not recognise it as such but you are.’

O’Donohoe said he believed social investment would become its own asset class but there was a lot of work still to do in terms of making it easier for investors to part with their money, especially around reporting  and rating standards.

‘But I think this will be one of the great, most powerful investment movements over the next decade or so.’