24 Jun The Social Investment Business: June 2014 Happy Hour with Jonathan Jenkins, CEO of The Social Investment Business
Jonathan told us he first started in finance working at Schroders in 1989, soon to experience experienced crisis like the Black Monday and Barings bankruptcy. The fact that no one had noticed the disconnect between some important market fundamentals intrigued him. But that didn’t discourage him as he moved on to work for PLUS Markets, the SMEs stock exchange, fascinated by how money flows.
His career in impact investing began in 2008 when he got a job as Director of Ventures in Unltd, after a bout of consulting, and wasn’t committed fully to staying in the space at the time. His responsibilities involved giving grants to start ups, where he met lots of inspirational people. He was very honest in telling us that from the start, he struggled philosophically, since the lack of financial upside, compared to his previous life, was a tough factor to accept. It is for that reason he’s never tried to persuade anyone to leave the City to move into impact investing or social enterprises, as he’s not sure he would have done it proactively himself. He then launched Big Venture Challenge, a seed co-investment program which attracted more than £1 million pounds into social enterprises. The fil-rouge of helping small companies scale and become investment ready can be recognized throughout his career.
Then, in 2011, he moved to lead Social Investment Business. 8 months ago they launched a fund that de-risks the costs of corporate finance to social companies – the Investment & Contract Readiness fund. Social Investment Business also has £50 million from their own money to invest. Over these years, Social Investment Business in his view came from being a big static lender to being an innovative investment company.
With Jonathan in charge, Social Investment Business has kept away from social impact bonds, as he stated ‘We are an organization trying to create simple investments and financial products’. He recognised that one of the main challenges of the impact investing market is to keep touch with the people and, at times, to keep their language simple and understandable for charities and social entrepreneurs. Additionally, he advised that it was key to keep expectations in line with what the sector can deliver. As such, the industry should not promise the markets that they will solve all the problems in the next 2 years; many challenges will likely take much longer to overcome, and it is important to maintain credibility rather than short term excitement. This challenge is at the back of certain poor governance and management issues.
In addition, he touched upon the question of what is the right level of returns for impact investment. The request from some investors is often around the 8%-10% range, but he considers this as very ambitious and optimistic, although achievable in certain niches. In his opinion, it is very important to find a sector niche; this makes it easier to develop network and expertise, which then increases the success rate of interventions. One niche that Social Investment Business focuses on, for example, is healthcare.
When the conversation moved to target investors he mentioned the commercial pension funds are the last to come to impact investments class of products. They are tied by their responsibilities to the numerous pensioners and the fact that these investments usually can’t show any track records, are not liquid and sometimes are risky makes it even harder. It is important to show these investments are uncorrelated to the markets to attract this kind of investors. As such, Social Investment Business’ focus at the moment is on high net worth individuals: usually wealth products lead the way and evolve into retail products. Also SIB is working on a number of funds in which it uses its own money to provide a degree of capital protection to attract new “mainstream” investors.
Finally, Jonathan encouraged social investors to start getting comfortable in investing in for-profit companies. Often the fact that an entrepreneur can enrich himself with a social enterprise is a barrier for foundations and other grant-making organizations. However, it is in “profit with purpose” businesses that often the best ideas and the best teams for execution are found. This theme was also explored at the G8 Taskforce for Social Impact Investment, where he was a member of the UK panel. On top of that, and in order to maintain consistency with mission, he advised that every charity should release a report on their investments, and that just negative screening isn’t enough. Charities have the obligation to exercise the investor’s confidence in them.
In conclusion, he affirmed there is still a decent pool of money to be invested for impact, but it is difficult to get it to flow since the market can only absorb a certain amount, at least as long as we exclude for-profit businesses from the equation. As such, it is important that more mainstream investors come on board and, to that extent, Finance Matters is key to keeping up interest of people in those institutions rather than the social investment market remaining a stand-alone minority sport. Jonathan sees SIB and others as hopefully providing the evidence so that the next generation – i.e. the Finance Matters generation – can really take this to scale.