Cohen predicts new social investment asset class

The father of venture capital in Europe is predicting the beginnings of a new investment asset class that will turbo charge social entrepreneurship.

Sir Ronald Cohen spoke to Social Enterprise at the launch of the first Social Impact Bond (SIB) at Peterborough prison on Friday.

He said: ‘Really the aim here is to create a new asset class of social investment.

‘If trustees [of financial institutions] see they can get a ten per cent return on a Social Impact Bond, and that they are doing good, they will say why not allocate one per cent of our investments to it. This is an initial small allocation but the sums of money involved are huge,’ said Cohen.

‘As capital flows this will add momentum to the sector because social entrepreneurs can plan the growth of their organisations and get capital to finance it.’

Cohen, who will be speaking at the third annual social investment conference, Good Deals, later this year, said that he was ‘very confident’ that the SIB could attract institutional investors like pension funds, instead of the philanthropists who have financed the first pilot, so long as a track record of paying returns could be established by the pilot.

The £5m raised by the SIB will be invested in the One Programme, run by social investment consultancy Social Finance, which created the SIB. The One Programme plans to reduce re-offending at Peterborough jail by at least 7.5 per cent within six years. If successful, investors will receive a return of up to 13 per cent on their money, with the returns increasing as the rate of re-offending drops. The financial return to investors will be paid for by the treasury and by the Big Lottery.

Several speakers at the event highlighted the importance to civil society organisations of the security of long-term funding offered by the private finance.

Colin Lambert, operations manager of the One Programme for the St Giles Trust, a delivery partner for the programme – and himself a former repeat convict – told Social Enterprise that in the current environment of spending cuts, having six years guaranteed funding was an ‘enormous opportunity’.

Janette Powell, the reducing re-offending director for Social Finance, who formerly worked for the National Offender Management Service, said the ‘joy’ of this ‘fresh new money’ was the flexibility of it, which allowed the programme to be tailored to the prisoners’ needs instead of having to focus on one outcome area like training or housing.

She said this meant there were opportunities to commission a whole range of civil society organisations to meet the different needs of each individual prisoner.

‘There will be some existing provision in the community that we will tap into, and there will be some new services, where there are current gaps, that we are going to need to develop,’ said Powell.

The Big Lottery’s £11m investment is not only helping to finance this pilot but other SIB pilots in areas of public concern like diabetes prevention and the better management of children in care.

Mark McGann, deputy director of policy at the Big Lottery Fund, told Social Enterprise: ‘We recognise that the old world, the world of grants, is changing, that we need to find new models, more sustainable models perhaps, to ensure that the voluntary sector can continue to be at the cutting edge of service delivery, and this is one way of doing it.

‘We want to put lottery money in areas where it does lever in private and other investment,’ said McGann.

Social Finance director Toby Eccles said: ‘We think that the level of interest generated by the Social Impact Bond in social investment generally is very exciting for helping generate social investment as a potential asset class.’