Capital Markets In Crisis: Threat Or Opportunity? «

Session: Capital Markets In Crisis: Threat Or Opportunity?

Thu, March 26, 10:45 - 12:15

2009 | Investment

With shrunken investment portfolios and budgets, corporations, investors and philanthropists are facing hard choices. What will be the impact on social entrepreneurs and social impact investing? Will the increased emphasis on sustainability and social impact be sustained during tough times? Is there a silver lining in the cloud as investors recognise that social values provide business opportunities – and may help reinvent capitalism?

Videos

Capital Markets In Crisis: Threat Or Opportunity?

This morning, our title is 'Capital Crisis, The Crisis of Capitalism: Opportunity or Threat?'. This is a title that I have been grappling with unwittingly for the last six months having the fact that Michael Green and I launched our book, "Philanthrocapitalism," about three days after Lehman Brothers went bust.

And so, the first question that everyone has asked us every time as we have promoted the book has been "Doesn't this financial crisis render the entire subject moot. Isn't it all over - isn't the idea that social entrepreuners can change the world in partnership with risk capitalists that we were talking about whether they be philanthropists or funds or big companies that are backing these ideas - isn't it all over, this crisis has discredited capitalism we are back to the age of big government and fit set the final of the couple of those i like discussion why is that I do think that this is once in i genaration moment to that daily brothers when passed to mark to start of new a para dime.

The whole para dime is over and we are now in the process where in the next few years. We are going to be having to rethink everything in the again the principles sold the good ideas from the bad ideas and to come up is a new good ideas and this is going to be a very very difficult and confusing real test of the leadership of the world real oppurtunity for new release to come from new ideas might have believe the actually financial capitals to recall at all Social entrepreneurship or creative capitalism or whatever name we want to apply to it, is going to be one of the ideas that needs to come through, even stronger as a leading idea in this new age, this new paradigm than it was under the old paradigm.

That ideas of... we certainly don't want to throw the financial innovation and capitalism out of the window.

But, that financial innovation and capitalism without a grounding in values and sustainability, and demonstrating a clear benefit to society as a whole, is going to be in trouble. So, the challenge is going to be, to find a way to sell that message to the powers that be in this new era.

And it's gonna afford to many of you to demonstrate through your business models, and your, your successes. How this new modelcan inspire much broader social change. That's my perspective, we have three fantastic panelists to give their perspective and hopefully to agree with me but, more likely to disagree with me.

And unfortunately, David Blood of Generational Capital can't make it today, he's had the last minute scheduling issue, which I never know what that short handful.

But anyway, in his place we have Sam Moss, who is president of Gray Matters Capital, who I think in some ways, because he's not investing in Toyota as far as I know, may have more practical and useful insights than even David would have provided into some of these difficult questions that we're grappling with.

So we are going to start with Saran Coen[sp?], who has been an inspiration certainly to me as I have looked to this field over the years; I think to many of you, then Jan Piercey, ShoreBank and finally Sam. So about seven minutes to start off. I'll come back with a couple of questions and then we will throw it open to discussions.

We are not able to control over there unfortunately.

We have two Americans and one British person, we thought he, may be, should get little more time, so keep this off. Thank you, Jen.

So, I'm delighted to be here with all of you again at the Skoll Forum, at the time when I think the social sector or the third sector, however you like to call it, faces some very real issues. As Matthew has said, we find ourselves in a situation where we really have a perfect storm, with this comparable only to the thirties, where we are going to see an increase in social need as a result of climbing unemployment, the possibility of increasing house repossessions, General disruptions to people's lives.

And this is coming at precisely the same time, as government is forced to. financial system, financial system that has grown to be larger than anything anybody had expected I think in system which are sometimes multiple of the size of gross national products and the need to fund increasing financial system needs to support those who are unemployed and its possessed means that government budgets are The tremendous pressure.

And so, you have this paradox, that the time when the social sector should be doing a lot more, government is in a position. In a way. supported the lots less and government constraints a very real I don't know if they have been addressed in some of the other sessions but the governments have to contend with the reactions of capital markets to their plans.

You've already seen into these headlines, evidence of the fact that the UK and Germany's already been in the same position. Has not sold out that whole planned bond issue.

And the fears of government is that, they cannot manage to implement a new deal, if you like, in inverted commas, if they don't have the financial resources, and they don't have the financial resources if capital markets don't trust them. And in order to maintain the trust of capital markets, they may have to constrain their expenditure on a reflation program.

Now what is particularly concerning, about this, is the governments over the last few years, in many countries and perhaps in particular in the UK, have been very supportive of social investment. Government here has created organizations like future builders and unlimited With the hundreds of millions of pounds going to them, it's had initiatives in the social enterprise area.

It's constantly wrestling with the question, of what it should support. But if we give up on government because of the pressures on government we gonna find ourself in very serious trouble . Already we're seeing evidence, that the decline in the values of foundation portfolios are leading them to reduce their donations, they don't need to tell you that individuals are a lot more careful about what they do in terms of their personal expenditure and they will do the same with regard to their social investing or their philanthropic contribution on the question is what does the social sector do in the face of this challenge.

Well, the first part of the answer is we cannot give up on government. We're a nascent sector, we need government support. Government has to play a major enabling role in Note for us to be able to do our work If government does not continue to support tax xx for instance particular types of social investment, the community investment tax relief comes to mind here in the UK similar to the new market So credit some in the United States.

We've had an allocation, so far of 40 million pounds, for our program that initially should. Attracted 100 million pounds or 200 million pounds for the social investments transforce of we have to have a broadening today it suits government in the sense of that if investment is not forth coming then the cost to government is zero matching finance bridges ventures, which I am the founder and the chairman god going initially because the government was prepared to match 20 million pounds Raised from the private sectors for investment in social venture funds, with 20 million pounds of government money.

Again, matching finance is a crucial aspect of what the government has to do in this in this crisis.

And finally, a social investment bank; the unclaimed assets commission, which I also share, has been negotiating with the government to get their support to take assets which have lain dormant in British banks for 15 years are more, which are hundreds of millions of pounds, and to devote three hundred million pounds of that to the creation of a social investment bank, which would be independent of government, although it would report to parliament, and whose goal would be to connect the social sector to the capital market and to develop the social sector, through the provision of finance through its own bond issues, which have attached to them tax incentives the kind that I have describing, equity issues in investments in organizations that are trying to set up scalable, sustainable models, capable of achieving more effective results, than straight philanthropy has been able to do over the years.

That is the threat part. As for the opportunity method. I think the opportunity is for us to use our innovative skills, which have got us into the situation, where today we are being noticed and people attending this conference, well I'm sure, who've got the same sense of dynamism in the sector. Over the last day, or so that Jan Piercey was was telling me about.

There is great energy, and there is great innovation, and we have to use that energy and that innovation to define ways for government to postpone its own expenditure now, in return for a commitment to pay by results. Now one of the organizations have been helped in I've been helping and have helped to found the school of social finance.

Some of you would have been at the session preceding this one, which Toby Eccles chaired. Social finance is a group of people who believe in the concept of the social investment bank. Chairman is Bernard Horn, who was the equivalent of Chief Operating Officer of NatWest; David Blood, who wanted to be here today--there was a mix up of the time when he agree to come to speak; James Strachan, who is on the board of the Bank of England was at Merrill Lynch, Peter Wheeler, Goldman Sax and previously FutureBuilders, come from both the voluntary and financial sector; David Robinson, those of you who know Community Links in this country; Victoria Hornby and Geraldine Peacock who was head of the Charity Commission are other members of the board.

We have joined the dots on a social impact bond, which Matthew if I have time, I would like to describe briefly today. The concept of a social impact bond is this and I'm going to use the example of re-offending to illustrate it. The concept is that you would issue a bond with community investment tax relief attached so that you would have, say 5% offset against your income tax a year for each of 5 years for the duration of the bond, which was Community Investment Take Relief Office here in the UK.

And you would have an agreement with the government that have raised 20 or 30 or more 100 of millions of pounds or dollars to address the history of re-offending, that government would agree as you work with organizations that are active in this area, government would pay on the basis of results; a certain amount of money each year for each person that did not re-offend.

They do not Defend for one year, they don't, to defend for 2 years, for 3 years, 4 years, 5 years. Sufficient amounts to repay the bond and to live a margin, so that. this is one example as the social organization that is using the money of the bond and improve it's sustainability. The initiative that placed to government needs today government is per spending its expenditure on in return for paying a portion of the saving in the future.

And so the opportunity for us is to innovate to come up with practical ways raising capital on the bank of government commitments.Now the role of he social sector is to do Markets and government are unable to do for the benefit of society if we given the tools we will do the job. Thank you.

Jan. I agree that we cannot give up on government, and I must say that I feel better sitting here this year or I would have last year, with respect to the United States, because we do have a government now, that is looking to innovate in a space. But, for Americans in the audience, will appreciate that, we have not ever done anything on a scale that Ronald is talking about in UK.

So it's very inspiring to start here to think out of the box.

I was reading yesterday, something in a communication from one of the Skoll scholars, which had a tagline of the best way to predict the future is to invent it, and that is what I think we're really doing here in these days. I've found myself already enormously moved, by the kind of, not only creativity and impact.

Which all of you are having but also the moving to scale. Because now we can track some six years I believe of school scholars. And these organizations are not simply extending their outreach, they are also very much scaling up through impact. So, I think that is what I drawn to take some optimism in the face of this very serious crisis.

I wanted say just to worry about my context and then go on for with just a few observations before we kick it open to an exchange in terms of questions. I have 2 perspectives: one well comes from having represented the United States on the board of the World Bank for some 7 and 1/2 years during the Clinton administration.

And that was at a time when micro-finance was just beginning to gain traction and the board in fact had a debate soon after I arrived about whether there was any reason for the World Bank to become involved in micro-finance. It was seen at that time as something that was not a legitimate part of the domain of finance, but more belonged in a sense of development assistance.

So, and that was not so many years ago, that's less than decade ago, so if we look today at the size and the scope of micro finance industry globally, we can see the emergence of some, a whole phenomenon, an extension of the financial system that we didn't, that was not anticipated at that time, and which not even credible at that time.

So, which gives me confidence that we're likewise going to be able to innovate, in ways, in this crisis, that are going to take us in new directions. The other perspective I have is as an executive at ShoreBank corporation, which is 35 years old, it's the first and the largest community development financial institution in the United States, having said that, in all humility, after 35 years We're just at 2.8 billion in assets, though about 3.5 billion in cumulative mission investments over those years, and we really do need to scale that, if we're going to have a broader impact.

It was very interesting that, last week, the head of the Federal Reserve, Ben Bernanke made the observation that, as all of our larger financial institutions are imploding, it's the community banks that he thinks could really be the network for rebuilding, because they are more connected to local economy.

And Shore Bank is one of those community banks. But the challenge for us is, because I do believe this is for us some real value, besides, how do we scale this and get ourselves to be a larger factor in the financial sector, in the main stream finance, because that's where I think we would find some durable solution.

It was a Skoll Foundation executive who noted to me that on the very day that Lehman declared bankruptcy. They receive notice, they are an investor in ShoreCap, a small investment fund that Shore Bank started, some 5 years ago, to invest in financial institutions in the developing world. They do small investments lending in micro finance.

And so they get a notice that day of an internal rate of return for ShoreCap, which is more of twenty four percent. I like to judge the division. Though we are small, we have big aspirations and earlier this month Truders Bank in the Netherlands Brack in Bangladesh and Shore Bank together announce the formation of a new global alliance for banking on values.

It has 11 members so far and the banks who are members have combined assets of 10 billion and serve some 7 million customers in 20 countries. The goal of the banking alliance on values is to promote a back to basics approach, as a positive alternative to the global financial system in crisis. We want to lead a debate on developing banking models we think could inspire profound change in mainstream financial industry.

So to try to move beyond a kind of parallelism that has occurred with the larger financial institutions dominating the scene and the community bank and others regarded as very interesting, but more of a sidebar than an integral part of the whole continuum of financial services. This is what I think.

The opportunity is in this crisis, because it is jolting us out of our believe in the masters of the universe, who have been shown to be not all that we thought they were, I think that the blinders have come off and in this context we can really reinvent very, very substantially. Now this is though, it's a systemic crisis and not only a financial crisis, alongside which we have the issues of global warming, of pandemic health challenges with inadequate health system to address those challenges.

So this all is taken together other but I believe that there are two, that the opportunity in this is that we have to recognize the complexity and interconnectedness and together devise a new international architecture for addressing these challenges. I was thinking when I was on the World Bank Board, at the time of the Asian financial crisis when Indonesia was imploding, and it was the G8 who were trying to come up with strategies to address that, and Indonesia was not at the table.

Next month, in April, the G20 will convene and we are moving beyond a smaller set of countries, attempting to devise strategies for the world, into a more collaborative arrangement with more countries and players at the table, as there needs to be. We all have to have a stake in things or we are unlikely to agree with the strategies that are introduced.

Now, I don't begin to know--and maybe there will be some observations on this as we open the dialogue--I don't begin to know exactly how we create that more inclusive architecture in a way that will work. But I do know that the conventions that have served us sometimes well and sometimes less well over the past decades are now with this crisis truly are not gonna make it through it and we are gonna be doing some major reinventing.

The one risk in this, though, what's stimulating so far in the United States, is that I'm sure we're going to see a great deal more regulation, rigorous , uniform and broader and again that regulation again is going to have to be transnational. And it would be unfortunate I think if it, it was only regulation that comes out of this.

Instead, I think we need to do the kind of thinking that Ronald's eluding to is happening in the UK of what are the opportunities here? Some years ago, the Community Reinvestment Act drew banks to move and serve to some degree to under-served areas. I hoping as we're thinking about addressing this crisis, we're gonna think about what are the incentives now that we could introduce, that could unleash the extraordinary capacity both of Government individual organization of the non profit of all of the sectors, and one thought for example is there's what will merge out of Regulation will be a kind of licensing, and if you were to set aside a small part of some of those licensing fees as a pool of money that could be available for the financing adventures with positive public impact such as the models that Ronald has been talking about.

I think we would be opening up some tremendous possibilities. I, I, so I think finally my one other thought that I would throw out is that that I think what is happened is going to create a kind of more of an impadis for this sort of blended values investing that has been talked about in this form for sometime.

And for all for rethinking what shareholder equity actually means, and moving away from a short term quarterly earnings for financial returns, into a broader understanding that takes the account of externalities, of some of the negative impact, of poor environmental stewardship and practices, that begins to reshape a longer-term vision of what value, what constitutes value.

Now, I'm very inspired when I come to this coform, it gives me confidence that there are the models and the leadership, that can adress, take advantage of this opening and this discrediting of a, a former system to truly, to truly reinvent. I was, I was, as I think about the scaling that's going on just, just one example I was talking with the founder of room to read yesterday and realised that it has become a 28 million dollar organisation in just ten years and I think about the acumend fund And, a tremendous number of funds and stimulus that it has had, and I think about the examples and the success both financially and in term of impact that sure bank has had with sure cap and several other funds so, I think we have the where with all, but we're gonna have to think big, and we're gonna have to challenge our previous assumptions.

Samos, could you maybe just start by explaining a bit about what you do as people don't have your bios in front of you? Sure. Grey Ghost Ventures and Grey Matters Capital, which is a subsidiary of that is a two hundred million dollar social venture fund founded with one person's proceeds, Bob Petillo, that's good and bad.

The idiosyncrosies of a high energy entrepreneur who visited us everyday, mostly in positive ways, but with that we have about a hundred and seventy million dollars, invested in the social activities, and about 30 million dollars in a variety of different trust and foundations. And a 170 million then we have about 50 million dollars committed to micro-finance, 18 funds many of which we helped create with others, half debt, half equity, about 50% of exposure in Latin America.

The second part of that we have a social venture fund, we used actually the proceeds from the gray matters capital foundation, we can come back and visit that in a second. Which we do, in direct investments and, and, and companies that are focused also in developing countries and under rack, under served populations there.

We have then recently in the last year started in Hyderabad, affordable private school financing as you may know the difficulties of the government schools there, have created an incredible more opportunity for private education, in Hydrobod alone, a city of five to six million people, there are three to four thousand private schools that are operating outside of the public school activity.

As they grow they need financing 20 to 30 thousand dollars. That's larger than micro finance institution are generally willing to look at and so we started a fund there to examine whether we could provide the financing in financial successful then we're open up to others. Within the foundations pre-matters capital, but all, one of the things we found is that within US laws the 16 million dollars that we have within that foundation if we did private equity we would be restricted to a very very small fraction of that, we decided to take an aggressive approach of looking at it as mission related investing and we put 10 million dollars of that 16 million into private equity activities around the same missions that we have of certain, of under served populations.

So we expect to be able go and visit Bob in jail once this is published out here. But we've seen in the terms of what this conversation is, in terms of government activities, the laws there are archaic and for foundations and it's not that they intend to be. They look to the past and so they're starting to look towards the future.

And so, there's much greater flexibility around foundations being able to use their financial assets in very positive ways and using it as investments rather than just as stolen profit capital as well. And so we merge these two ideas of high impact social investment as well as expectation financial return.

Tell us more broadly about how much opportunity there is, more generally, when this crisis.

I think that what we've seen on the government's side is it become quite active, especially in micro finance. In terms of first loss categories coming in as they're going in, so, to encourage more investors to come into that. The important part of that will be: one is determine which government participation is no longer needed and that is always been a little dodgy, in terms of getting them out, once the private investors are able to come in, there is that opportunity for exit and had been notoriousely good at that, the other part is the currency risk, most of the lending and micro-finance for example is in dollars or euros, and so that hasn't been an issue over the last seven years or so in terms of the dollar raise, that is currently a potential problem as they start trying to refinance.

So, government participation in those actually has been quite useful through the iffy's and the tiffy's and the rest of that and trying to create areas to attract additional capital into it Before we start to talk more about the opportunity, I think a lot of people here would be feeling, you know, we need to make sure that we're still going to be around to actually take the opportunities that exist.

And I wanted to tease out first with you, Saran [sp?]. What exactly is the economic situation from your perspective that we're facing? I mean how bad is this going to get and how much should people just be battling down the hatches at the moment and sort ofjust trying to fight through the next couple of years.

I think it was clear the higher we are going to go in the economic cycle, now the lower we were going to come. And it would have been perhaps in retrospect of a brave regulator who would have stood in front of the thundering herd and said hey you're taking too much risk. I mean Greene Span did of course in 1998 I think make his speech about irrational exuberance and perhaps we could have done with another speech in 2003, 2004 about gargantuan appetite for risk, but it was quite obvious I think that today there was a huge balloon of depth and the financial system got a lot of air from increasing deposits in China and India we blew the balloon as much as we could when Bernacchi came in and interest rates came up, we had to let go of the balloon, and what does a balloon do Mathew you when you let go of it, it just goes all over the place and then it drops, and it takes a while to blow it up again, and I think that that's the image that I have of it, the balloon is still going in unexpected, in unexpected places.

We've not seen the last of the hits to the financial system that will come from write -downs on leveraged loans and property loans and consumer finance. So, we're not at the stage where we can say that the financial system is repaired. We can now begin to function with the real economy, if you like, as we're used to doing.

We're still very constrained by the lack of credit. Now how long will it take for the financial system to be fixed? I don't know, maybe the end of this year, maybe the first quarter of next year. And how quickly will credit flow while given the hits that have taken place, and the fact that the balloon was overblown, you can't expect to go back to the same amount of credit that you had before.

So it's going to be gradual coming out of it, and at what stage does unemployment stop climbing? Well, it'll be when credit has flowed enough, when uncertainty has been dispelled, when consumers are becoming comfortable in spending. So it is tough for me, to see a scenario where next year its going to be great.

I think next year is still going to be a year of repair. Perhaps in 2011--end of 2010, beginning of 2011--we can begin to see the trends reversing, but even when they reverse, I don't think you're immediately going to go into very high growth situations, we wee likely to see a period of inflation following this we were likely to see higher interest rate in order to control inflation.

So, we're not out of the woods, and I think it's important for us to be able to take this situation into account when we plan the development of our social organization. Not to go off on the basis of false premises, but I think what you've heard this morning is that it isn't a question of just cutting everything back, because the social need is going to be so great.

And if we can make our voice heard with government and use intelligent approaches, I think the social sector can emerge from this, as Jan was suggesting, a lot more important when we went into this crisis It's interesting, because the phrase is what you use is to describe government and sort of shocked me a bit because I suppose I'm spending most of my time in America at the moment, and the idea of don't give up on government is the last thought that's going across anyone's mind at the moment. There is this tremendous resurgence of faith in the government, I think by people who had given up on it.

The social sector leaders that I talk to, I feel are in a kind of paradoxical position that, on the one and they see the most sympathetic government towards their issues and approach that they've ever dealt with, and on the other hand, they're aware that there's a lot of money being distributed now, much of it, they don't know whether they should be trying to get more of it or not.

And a lot of it, without their efforts, is going to bypass them altogether and repeat many of the errors that, in fact, they came into business to correct, in terms of bad government spending. so I'd be also interested in getting yourself of what you see a positive, much more constrained environment for government.

Well, I use that phrase because I think government will continue to be very supportive and pay lip service to the things that we do, naturally, but when you start asking for allocations of capital, you're going to hear that we don't have the budgets to provide it, and we're already hearing that, in here in the UK, and you could have a reaction to that of saying, "Look, government doesn't have the money." you know, let us just cut back and shrink our activity; despite the fact that the need for the things that we are trying to do, is greater than ever.

And I am saying that I would be the wrong thing to do. We have to make our voice heard with government. We have to persuade government that even hundreds of millions of dollars going into social investment organizations is a lot less than the trillions that are going to go into the economy and the financial system, that without it social tensions within society will rise to completely unacceptable levels.

The things that we are able to do today should persuade government to let go of the purse of the purse strings,but they weren't necessarily.

And I think what's interesting about some of what you're doing now is,it's not government money coming into the sector by way of state dispersement. You are a actually unleashing some resources that were not avaliable befor for either goverment or the sector so may be you should say a word about the banking asset, that's tapping the banking assets, because I think that's what we have to do, we have to think more creatively than simply Goverment allegation but how do we trigger the policy with some new clause.

let's come back to that actual moment. I also want to push u a bit on an interesting conversation I had. I went to a meeting called "The Gathering," which was a lot of leaders of non-profits that wereWorking with New Profit Inc., and they're very well connected to the Obama administration. And the debate that was going on amongst them was, "Should we?" How hard should we fight to get the money that is available now.

In the next year, governments are going to be throwing cash out like there's no tomorrow the issue was, well do we fight hard and get the money and scale up in a way that we hadn't planned to do and which we can't count on being able to sustain, Beyond this stimulus package, What do we just sort of continue to think incrementally and struck me that the only people in Washington and at the moment and presumably in London, thinking that way, all the social entrepreneurs.

Everyone else is just trying to grab as much money as they possibly can. Now, what's your advice up to people in the situations should you just speak to you can to goes much money in through the door well live good times government wise it so happening in the deal with the consequences tomorrow or do you just continue to think long term and strategically.

Jan, what do you think? I'm just a little surprised, because I think that it's sort of the wrong question, in a way, for an organization to be saying, how do we get some of the money? I was recently at a meeting, talking about the social investment fund that candidate Obama, President Obama had proposed, and talking about how that might work out.

The President has created a new office in the White House on social innovation, which has not existed before. A point was made at that meeting, as people were talking about this social innovation fund and how it might operate, that the amount that was unleashed by the Community Reinvestment Act, would totally dwarf millions, would totally dwarf the size of the Social Investment Fund.

I suggested to those assembled that we better think more creatively there's not about the direcubliminolication may be may not be what we should be after all. I think few examinist winning up Sometimes when government gets in the is less grateful. So, I would say that's sort of the wrong question.

That's why we've got to look, for all organizations, at what they do and how they scale should be driven by their constituency, their need that they are addressing and their capacity to expand.

Sam, do you want to No, I'd actually agreed. I think that any kind of funding that comes from a government source we have to be healthiest believe that its temporary and as long as it accomplish it goals of the organization can make a determination of how to get along without that, it's probably a healthier strategy.

OK. Well let me challenge you on that, then, because it's It seem to me that we're talking about a group of people who I think have thought harder about social innovation and how to solve I would like to share problems anyone else I would ask in these ten years or twenty years in this sector or in this field and two to five years, maybe the next one year.

The whole course for government's relationship with the economy globally Nationally will be said and and vast terms of mine will not easily be shifted from whether a case till the next year or two. And tax rate shall be given or taken away as may happen with the charitable sector in America. And i would want, in an ideal world, i would want this room to be deciding how that money was spent over the next few years.

This is what i would love to see happen. And yet you talk about, I think the sort of thinking that I'm hearing is continuous thinking. It's the thinking that says, "Room to Read has got to twenty-eight million dollars." Which days in paladin in the new paladin i want to see have in to read to get 2.8 billion 28 billion dollars does cried source of money that a kind of being shifting around the next year or two and you know i just want to has this issue actually takes scale seriously, in this new world that we're building.

Are we just going to leave it to these people who for the last 20 years have been filling their pockets at Goldman Saks and now decide that [xx] the career for them and they're going to do it exactly the same old way, or are you actually going to find a way to make this crisis a genuine opportunity, Ronnie?

Well Matthew, you followed the private equity Industry for years and would be xx xx private entrepreunership and so on it didn't happen because government Things directly didn't happen because governments funded private equity funds wholly or they provided useful matching finance in different cases.

I think what we're saying today, is if we want to create scalable, sustainable organizations, we're not going to do that on the back of government money only. Now you didn't get my reaction to: if offered money, do you take it? The answer is yes; you take whatever you can when it's offered to you, because it may not be offered in the future, and you marshal it in an intelligent way.

But if you want to try and create scalable organizations that have revenues and inverted commas and social benefits creating the billions each, you've got to be able to connect the social sector to the capital markets with the help of government incentives. You've got to have a organization like social finance or the social investment bank that can issue a hundred million dollars or pounds of bonds for a specific purpose, where tax incentives are given to those who are purchasing the bonds, who could be individuals from the public or institutions of one kind or another; and that money then gets redistributed.

[xx] to the sector. You've got to enable some of these large organizations to raise equity. The concept of equity for a not for profit organization [xx ] has been defined now it is possible to raise a [xx] to define a security where organisations of the person providing the capital starts off with a low level of return of three or four percent and then, depending on the surplus that this is creating in the organization, I'm thinking of organizing you give an entitlement to a share of that surplus and you can the rate of [xxxx] like the xxx bank and thehxxx banksurplus that is created We turn a two or three times the original return the value of that security will its trouble that the time and providing the record of social investment organisation [xx] is solid, you'll be able to sell it into the financial system.

I think the break in thinking isn't so much in terms of scale. It is in terms of scale, i mean you Right that is majorly in terms of scale we have to go move a way from the voluntary self sacrifice xx approach to self xx in a certain xx xx you are saying that's fine certain types of organisations its precious and important to them xx we need to create scalable xx [xx] organizations that can have major social impact.

And if you're going to do that, then the paradigm is a lot broader. It's about how you finance yourself continuously without dependence on xx xx No I would agree that exactly the point is if you can see how the value the available money helps you accomplish that greater scale to serve a greater number in an effective and a sustainable way, that's absolutely what you should do there is a problem; are you prepared to do that?

Can you get be prepared to do that and who is able to do it. And I think those are embedded in x as well, but scale is an absolutely critical one and then how do you wean yourself off from a government who is not always as thoughtful about what it is you are trying to do as you may be.

OK, I'm going to throw open to question in a moment, but I just want to challenge you on this, because we interviewed Alan Greenspan the other week at the Economist. He said 50 trillion dollars has been wiped off the value of global equities since September the 15th last year. 50 trillion dollars.

That's just a phenomenal number and it just makes some of the numbers we are talking about here seem kind of completely trivial. So it seems to me, the scale question is extremely important. The second issue is, you're talking about the return of private capital markets. But, to my mind, the capital markets are now been owned by the governments of the world, particularly the American government.

And although in an ideal world perhaps they figure out how to make them work again and sell them back to the private sector this sounds like the plans are going to be to involve all the private equity firms in partnership with the government to try and sort out all the bad debt problems that are already out there in the system.

So it could be you know this is actually increasingly going to be in the hands of government for the like I don't know the sector has to improve. This government policy is really wants to have serious amount of capital, may be it can bypass the capital markets and find ways of doing it without spending lot of money.

And I guess the most experience of doing the that would be tremendous waist even that helps to you really change government policy and while the employees is also learning the skill as fast. Rather than who ever who doesn't has got the training to raise the money xx Over the next few years then come to you again what we need another new para dime.

I just, the one observation I would make is it, government is made up of individuals and part of who is in government and I have seen a lot of individuals work with kind of, set of values going in to government at least speaking from my own but others who seriously look around the world, globally and I look at the inclusion of might say that women in government which am not making.

Power setting the women are. But this hereto untapped resource are going into government, so I just made that observation. I think the para dime is going to change in different ways. The world financial system is not going to look the same. Banks have got too big to say in certain places. You are already beginning to see the bond markets opening up for corporates.

You may well find that actually the corporate bond markets becomes much more important source of finance than it was previously, in the context of that, even if there is ten percent unemployment of high levels of unemployment than that, the eight percent, nine percent prove are unemployed, many of them will feel that look we got to do something here, in the face of these problems, those who are better off, some of them will feel they want to do something to help.

And so I think the first part of the question is if you are imaginative you can find ways of accessing capital markets directly even at times which are going to make it look more difficult to do that. On the question of relationship with Government, for many many years I was involved with the Government on private equity, I have been involved in trying to help the social investment field.

It is not the Government is not willing to help. It's not that they've not created ministries to focus on it. It is that they are still thinking to use your words to old paradigm. The voluntary sector is still considered as an ancillary. It is not viewed in the way in which, say, the private equity industry is today.

It is viewed as the private equity industry was in the UK in 1980, you know, it sounds interesting, but is it really gonna get there. Can you really use financial instruments for social benefit. Is it really genuine that people want to help others, or are they doing it for some ulterior motive. This is what we're up against.

And we're up against it, not at the highest levels of government, necessarily, but very often at the level of the civil service, where the departments have competing interests. For instance, social finance, social investment bank. I will answer your question Jan, because I think it is interesting.

Social finance arises from the fact that in Britain, unlike the United States, Canada, South Africa, Ireland et cetera. If a deposit in the bank is unclaimed, don't know where the person who has the deposit, the person has disappeared, died, moved, forgotten about it, can't contact the person after repeated attempts, that money in Britain unlike these other countries, stays with the banks.

Now Gordon Brown started it as Chancellor and then has insisted on it as Prime Minister, has said look, this isn't the bank's money, this money has got to to used for social good, okay . And then speeches were made in parliament saying we are going to spend it on youth facilities across the country, okay.

Then the voluntary sector comes to me and says let's create a commission to look at what we should do with this money?Maybe youth facilities is not the best use of it. We come out with the concept of a social investment bank, and we say to the government, you know there might be 400 million pounds to 2 billion pounds flowing from this over a period of time.

Give us 3 hundred millionwith that 300 million we will issue bonds worth 700 million in our view, and we will revolutionize the flow of capital to the voluntary sector, we call it the voluntary sector in Britian, or the social investment sector. You can't manage to get a clear decision quickly. the Bills made it through Parliament.

It still talks in terms of number one; Youth, number two; Financial Exclusion, number three; Financial Wholesaler. And so, if the question is how do you manage to get decisions on these type of things as a sector just as a private equity industry, they did in 1980's, we have got to raise our profile.

We've got to lobby, we've got to appear in the press, we've got to make the case, we've got to commission research which gets published We've got to raise our profile. Otherwise, we're going to be lost in the noise.

I guess I find myself thinking, why don't' we just forget that and try to get the guys who run Charity Bank and the women to run Charity Bank in charge of Lloyd's and see how they do with that. Because the government has a new board to some of these companies and perhaps people who come out of this sector, making the people to run that to do it little or better than previous job.

I want to ask you if you going to bond market. What you have to do as a social enterprise is different. The peoples business models clear enough now to articulate to raise the finance in that way,

So that's why I think social investment bank is a very important step in doing that because if a social investment bank issues hundred million pounds worth of bounced deal with re-offending. And takes ten million of it on its books and places the other ninety million through the market. It is very different and the then lends it on to, or finances in one way or another, organizations in Britain or elsewhere, I mean in this particular case we are thinking Britain to help people not to re-offend by training them, by finding them jobs, by giving them psychological support that they need in all the other ways it's much easier, than for any one re-offending organization, to try and tap the capital markets.

That's why we call it the financial wholesaler. For both the shortage really and intermediary between the organizations that many of you in this room are leading and the financial markets. Today we cannot tap the financial markets, we cannot get government grounds easily, we cannot borrow from banks and charity bank only has 34 million pounds worth of deposit lets compared to Lloyds and so on and the donations that we receive from foundations are going to shrink.

Okay one last thing I can We are getting more question, I am intended to go out to the audience. i mean I think we should I should, there is a huge problem for years, every one been trying to raise capital from the mainstream capital markets, particularly from pension funds and so forth, and they come back and they're told that they can't have this because of the prudent man rule or the trusty rule that says you have to do what conventional wisdom says is the correct way to manage money prudently.

Now, my view is, the prudent man rule has been rendered completely obsolete by utter failure of the capital markets over the last two years. Now, does this create a fantastic opportunity to unleash those billions and billions of dollars that remain in pension funds, to actually be invested in a way that is genuinely prudent, by investing in long term sustainability and things of that sort.

Jan, why don't you take the first shot at that?

Well, I think that's really what I was saying. That we, for so long, shareholder value in the United States is being defined in terms of financial return in really quarterly earnings. However, as we are now beginning to, more than beginning, we are well in to what we can quantify, the negative impacts of poor environmental practices, and as those begin to be incorporated into the metrics.

And there's a lot, a lot of moves toward this, then I think we will see a different kind of evaluation. And, in fact, we are seeing pension funds beginning to move in this direction. In the last Shore Bank capital raise, for example, the Illinois Student Loan Association, which is a kind of pension fund.

They've just passed a policy to aggressively seek, with a certain percent, a small percent, a very small percent of their assets, but to aggressively seek investments that also had a positive social impact along with financial return. And it was under that policy that they were able to invest in Shore Bank, even though at the moment it's a privately held company and it's illiquid, but they could do that.

That's tiny, but we're beginning to see the fissures that we can walk through to broaden this.

But do you feel that they accept that the credibility old legal discourse is now gone or is this going to be two or three percent.

No, no I think this is evolving but it's not like it's disappeared, by any means, no. If anything, in some ways, it goes the other direction because the losses make all investors very very.

We just come back from having a serious of conversations with pension funds and other ones we just actually quite open to the idea. But I think what we've seen is that there is a Dutch bank whose best performing portfolio over the course of the last year has been their micro finance portfolio. It was positive or everything else was negative, that actually starts causing pension funds which tend to be going forward and this whole issue through the point you made its a reversal I meant a perfectly allocated portfolio over the course was last year, has declined 40% in the United States, except if you had a micro-finance piece within that.

So, this whole issue of the belief that because you were actually doing something that has high social impact, almost requires high risk, it is absolutely being rethought and the thought that you have a financial return that is a market rate financial return as well as a high social impact is not an alien thought any more, and the more progressive of those pension funds, are actually believing that.

So, I think that we're in the process of really having a substantial shift in the thoughts of that. And I think, even the VC funds, the Kauffman Foundation actually is bringing in social investment managers and actually, in addition to the purely financial managers and their cross-fertilizing each other, in terms of the thought of, just because it has social impact doesn't mean that it doesn't have satisfactory financial return, that will substantively change.

Now, that will take time.

Well, I'll just give you a specific example on that view, which is bridges ventures, which is in the market at the moment, to raise a hundred million pounds for property investment in poor areas. Now, Bridges started off, as some of you will know in 2002 raising the 20 million pounds from the private sector with matching finance from the government that I refer to and the investors from the Private sector were local authority pension funds, banks, private individuals, venture capitalists, entrepreneurs and so on.

And the girl of Bridges to invest only in poorest 25% of Britain and to show that you couldn't achieve satisfactory returns which we defined as half which he returns then,which we said there's 10 to 12% netter fees. In every other way, Bridges behaves like a normal private equity investor. The management team has management fees that has carriage got an incentive to build the business and so on.

The results of the first fund were great. We created a very powerful role model in Karen Darby, who was a single mother of three. Let's go to the age of sixteen with three GCSE's( XX) and with a business partner, turned the call center company from 300,000 pounds to 22 million pounds worth of value.

So just outstanding. On the back of the results of the first fund, it's not just the call center, it's a call center with a cost comparison engine for utility bills. We'll go into that in questions and answers if you are interested. On the back of that, we raised 75 million pounds. It was very tough to raise any of the money from pension funds, very tough.

We raised some money from the university superannuation fund, which is great. But pension fund trustees, on the whole are very conservative in Britain. And now, as we go out to raise a 100 million. pounds to invest at the bottom of the property cycle in the poorest areas where properties worth less than anywhere else and where you'd think people would be rushing in saying, instead of twelve percent these people while doing social good, they are likely to deliver more than 20 percent, it is proving extremely tough to get trustees at a time when the portfolios are shirking to take risk they find themselves with ill liquid portfolios hit by client in markets of 50% in public equity markets and the clients in private equity and other classes.

It's very tough. I think, it's tough to rely on it and I mean, there I think, it was awesome is that you, see if you could help us with some other pension funds which may be more adventurous.

I mean it's crazy, isn't it? I mean, really, I mean, they can't see the opportunity here. Anyway, let's, let's so its open to questions and comments. Lady in the middle waving the hand. Say who u are before u ask the question coming to here.

My name is Kelly Clark. I agree in terms of the triple play being possible and that the commercial markets beginning to see that but I think that thing is not often expressed and I would love to hear the panel's point of view on this, in order to make those social enterprise investment to yield double digit returns.

There's often subsidization in the deals along the way. And the ways in which those deals are stacked often make it possible to achieve that the double digit returns or even high single digit returns and that seems to be an opportunity for the government to realize some of the capital is able to deploy as well as the pension funds.

So, I just wanted to hear a little bit more about, kind of the bridge between that, where we are right now in terms of the perception that social enterprise does not yield returns and the reality that it can but some of the subsidies along the way to make it happen Jan, do you want to take that?

I'm really glad you brought that out, because I think it is, and the bridge is a good term, I think now there's good innovation going on and thinking about how you can structure investment opportunity, so that you can lever in the private sectors, that were. For example, Shore bank recently had a privilege of being engaged by Baraq and Bangladesh to create a loan fund, to finance their expansion of their micro-finance activities in Africa.

And we did it with a, Roy Spangler is the president of Insure Bank International, and quite a creative financial thinker. Designed a two part are two-tiered structure so that we could go out to more philanthropically minded investors to purchase for slightly higher risk profile and that would leverage in the more market return investor.

What was interesting to us, though, was that when we went to an organization like the N as a finance cooperation, which is in business for development. They wanted nothing to do with the. They only wanted the market rate returns thank you. We're not going to go to the IFC on this one. On the other hand, OPIC, the Overseas Private Investment Corporation, a government entity which had never before invested at a lower than maximum financial return tier.

We said, we will only do this if you will buy both coupons and they did. And that created a new precedent. I think what we desperately need is what we've called at Shore Bank for years, patient capital. And there is an implicit subsidy, of course, because our investors while investing for profitability and development impact and conservation while there is a modest dividend, certainly it is not, it is not the same return, same financial return they are experiencing over investment.

So there has to be thinking about ways we can weekend package Well, I'm not entirely sure that you need that capital, on the front end, coming in the form of grants. In some cases, it may be beneficial. In the things that we've seen there are opportunities, especially on the equity side, that wouldn't require any kind of grant capital coming in.

Now, there are stages where, again, if it's a pilot phase trying to attract people into demonstrated success. I think there can be that opportunity. It's the exit is removing it as quickly as possible so that other capital sources can come in.

I'd love to answer the question by looking at a specific example in the Middle East. My time is divided now, 2/3 of it, half, using in Britain, half using economics in the middle-east to encourage peace and this part of that work which is carried out by the Portland Trust. We have been working on a billion dollar affordable housing scheme in the West Bank and we should be breaking ground in June, politics on the Palestinian side, in this case, allowing.

Now, if you if we look at the risk return profile the number only work if we only have a 15 percent leveraging ground. We can raise 85 percent of the money from the private sector and the entrepreneur whose leading the first half of the program 4 or 500,000,000 dollars - has already got his equity in place mortgages are in place to provide some of the debt funding through deposits and eventually the purchase of the homes.

But actually, given the very high risk profile. The numbers only really begin to work if the infrastructure spent, the roads, the sewage, the electricity, the water, which And still about 15%. The public buildings, the school, the hospitals, the soccer pitch and so on, is paid from outside. You have no chance of really of raising this money if you dont have that money upfront or you need a miracle,u need a goverment make a disguised ground.

So, we have gone to various governments and said, "will you provide this leveraging ground?" Now, what you discover that is a major issue, you discovered that Governments like to lend to other Governments. The last thing they want to do is to invest in a project where Palestinian entrepreneur or any other entrepreneur is going to get rich, as a result, which is the purpose of it.

So, we're trying now to institutionalize for this particular purpose and make it will last a few years. There will be instead of 15,000 homes, may be 30,000 homes built if you provide the incentive more and the impact by the way is huge. The billion dollar investment increases GNP by one-and-a-half percent a year for each of five years.

So, for 150 million dollars of grant, you can get a one and half percent increase in GNP. Touches the lives of 200,000 people. So, the reason I'm mentioning this is, somehow you've got to get structure because structure really determines the strategy that you can follow and the structure that is required now is for the European union or the world bank or some other organization to create leveraging ground for facilities where 15% of the money comes in the way that have been described and the rest is raised from the capital markets at the moment what we are doing and I am off to Canada in a week's time to talk to the Canadian Government.

We are talking government by government, cap in hand, saying, "look, this is a worthwhile project. It will achieve things, that the billions of dollars, that you're giving in budget, budget deficit finance, will not achieve. It will achieve the strengthening. of the private sector,which is the primary source of employment under the sustainable economy and it is virtually impossible to do unless you couldn't unless you can create the mechanisms.

So I think if pilots, as Sam was saying of this kind for a period of time. I think it's absolutely necessary and we need to get structures in place if people are going to be able to take advantage of them. For bridges, I think bridges can deliver returns that are half or more and perhaps higher than those of the private equity industry, without any government help.

The last thing Bridges wants is additional government help. It doesn't need it, it wants to be sustainable in its own way. These areas, which are completely starved of capital, where the valuations in which you're investing are low, where most our resources of finance have no faith at all in the level of skill or motivation of some of the individuals involved and it is unconnected to the public markets interestingly enough these economies thrive better in difficult times, or at least the concepts that you back thrive better, because they're much more cost competitive.

So lets take 2 or 3 comments questions in one go. There is a gentleman in the back there we are going to come down to the lady in the pink top Thank you very much. I totally support Mathew's point, I think, if you look at the micro credit Summit campaign 1997 what they were able to do by organize themselves properly. And I think that I was in this meeting mentioned here about the global alines on values in Netherlands and they want to go to 75 banks.

So I think it's a time to create coalitions among new players, and if Skoll and Schwab and others who are active in this field could get together and do the sort of things that Mathew suggested, I think, would be scaling up the game, the second thing is if you don't do it, then the money the government is making available cannot be spend in the same way was spent in the last 20 years, which is of course the whole model of social enterprise was to be different than it's additional bureaucratic, bottom down model.

So there is a double incentive for doing this sort of thing. So I think, thank you.

OK, down here.

Yes, my question is with respect to how do we encourage pension funds to increase their allocation to this asset class. And so, Ronnie Cohen, you touched on this, in terms of the correlation, can we make a persuasive case that this asset class actually has a low or negative correlation, and not necessarily in a geographic sense.

Clearly we need to break this down, whether it's in Africa or whether it's in the UK, and so forth. But I think empirically we should be able to demonstrate that if there is anything that is negatively, or that has a negative correlation or a low correlation, maybe this is the asset class. Can you just say who you are for the recording?

Yes, I am sorry. I am Hearta von Stivel from Audio Capital.

All right. Just take a couple more as well, left behind.

I am Ben Gil from BioRegional. Just a quick question about the Green New Deal, which I'm surprised hasn't been mentioned. It's the second session I've been to where we've not really talked about the link between the social and environmental issues, and it seems that with this crisis, or the financial crisis, we need to resolve two issues to deal with climate change.

One is, we need this large amount of public money going into energy efficiency and sustainable transport schemes, but we also need to be restructuring the financial markets so when we come out the other end we're not going back into a system that just promotes increasing carbon emissions, so any thoughts on how we're going to do that would be great.

OK. And then one more over there. That gentleman. Gasow, I'm representing Blue Orchids and Minerals, is also an engineer, of course. To your remarks, I think recently there has been an initiative which gives a lot of support to the microfinance market, which has been constituted by the ISC for they have done they have founded an institution or corporation for five hundred million dollars which is put together in a micro finance enhanced facility.

We are as viewers playing a very important role in it. The remarkable
thing is that, at a time that we announced, or that it was announced, it has given a very, very, very sound, solid, let's say new the market, and particularly to the Dutch institutions, because they thought, if this is going to happen, then this is a sound market.

Up till now we were Nobody has not yet used even the market, it has lot of enhanced facilities because the market finance market has no problems in debt and the force, the only problems that we are faced is if all the seven, stand still of institutions coming to the market and giving new loans .So this is an announcement which can be followed by some other initiatives, particular.

Secondly, information is crucial. Where the Dutch institution, all investors are looking for is a SANS risk. And I've been around there and already told my friends over there, you get a SANS risk, you get the low return. But if you combine the two, you get a return which is on average, maybe, to your liking.

Well they have said you have done a very good job over the last year because we were the only ones who came up with a very sound solution. So, they are still giving in and that source is indeed coming up and we have stepped use of those there, and it will continue. But it depends on the information flow, which is so important to that, and we are not very pleased sometimes because institutions and also publications start coming up to stream as the economists did, on the Friday, the 13th of March, indicating that is new remark finance could be venomous source of as we p reparable what was happened in the united states which the bounces over there and that this type of publications can be corrected.

Great, well I'm going to come to the panel. You don't have to answer all the questions, but between you can you try to touch on all of them. Jan first.

Ok, oh the environment, ok. And I would say too, the question about how do we increase the activity of pension funds in this area its the track records and you have heard allusion to the track records and we didn't have those six years ago, so that's what. hits me hard is that we're now building those track records.

Shore Cap International, when it started, was the first fund of it's particular kind and it's outperformed to date. It has mails [xx] yet but it has outperformed its financial projections with substantial social impact. I want to come to the environmental, I am so glad this environmental point was raised and it is part of what I was talking about a shift in shareholder value.

I think a lot of, in this opportunity, a lot of the advocacy in the focus, I think a lot of good work has been done now to show and to quantify the cost of not having taken into account environmental impact and so I think we were on the right road, but I think those in the sphere have got to work harder.

And it, I think it is, there's still something away, a bifurcation. It has shown me that is a double bottom line institution, looking at financial profitability and sustainability and development impact. And it was when Eco Trust of Canada came to the bank said we think we need a financial institution to be part of what we are doing could you and importantly became involved in a bank there and so then bank realize conservation out of also it will be integrated into our core mission so we adopted conservation as well.

And it wasn't easy as we began to work, particularly with inner-city borrowers, in poor neighborhoods, for example in Chicago, where they thought that paying attention to energy efficiency was really a luxury of people who were more affluent but we began to develop products that looked at the cost savings and to front-end energy-efficient appliances and thinking about ways that we could demonstrate the link up and I think that is really where we have to be now, is not thinking about social impact on one hand, environmental impact on the other.

But truly, integrating it and interweaving these, as we think about a value across the spectrum. Sam?

Well I would tend to agree with a lot of that. I think the issue of correlation is actually very important. There hadn't been a lot of How are you doing?

Micro finance alone which is the narrowest and probably the best find of the social investment areas just now starting to move away from anecdote to data. And I think, this year or these years are going to be critical. I've trying to aggregate that. There is a international Association of micro finance investors who's entire purpose is actually to correlate data to demonstrate what is that correlation place and so that's the value of some of these institutions are now and I think it is very important for the funds as they go out and talk to, the pension funds who continue to have capital to invest to demonstrate here is whats happened over the last 5 years that's had last two years misfortune of it is the ninety micro financing investment funds have really only been around for a number of years that doesn't give you enough data to actually feel comfortable with.

really requires someone to really believe it and then leap forward. Some pension funds and some investors are prepared to do that and others are not.What happened with industries because I think big parellels between social entrepreunership with this entrepreneurship and the systems that are required in order to support both.

We would not have gotten anywhere without the Prudent Man Rule and the legislation 1978-79 is the truth because pension fund trustees in the United States were very conservative and really did not want to look at this asset clause and the prudent man rule basically for those of you who are not familiar with it said, "any sensible, experienced investment manager should consider private equity, of venture capitalism, then was as an an investment and explained why they decided not to invest in it if they decided not to.

Now, that transformed The role of corporate pension funds in supporting pension capital funds private equity funds subsequently if we want to bring institutional investors in, we need to have a social neutral, but that could be quite difficult to define, because you will have to come up with the sorts of examples that we did in those days and government would have to encourage trustees to accept responsibility to do something on the back of social need, even though it requires an act of faith.

Explain why you don't want to do it. It puts the onus on trustees to do it. Without that I think it's going to be very tough in most countries perhaps not in all countries to get the trustees which extremely conservative to invest in a new asset clause of social investment. I would like to make a second point.

We are getting the least help today from foundations in the UK. 60 billion pounds is in the coffers of foundations who define their role as straight philanthropy. We need capitalism to come to the trustees of foundations and for them to accept that straight donation which does not have the leverage associated with it the social investment does if you like to take the old you know the old the fish, giving a hungry person a fish vs. teaching to fish.

Social investment is trying to teach people to fish. It's trying to do things that have a significant multiplier associated with them. But, the way the in which foundation and the trustees of the foundation approached with this is that doesn't really fit within the ambit of what they are doing. You know it's neither investment where you are trying to maximize the return nor is it straight grand giving and despite what is been written about program investment by the charities commission, it is still not entirely accepted.

So, I think we should not ignore the very important power of foundations and changing the attitudes of trustees of the foundations at the same time the trustees mentioned mentioned us.

So there need to to be a real public campaign around that already. Okay, lets take another round of questions. The gentlemen in the middle there, and then a lady a few rows behind, and then we'll go over to those two. So down here, in the middle.

Yep. Nino Tillman from the Institute of Cultural Affairs. One of the things in the U.S., we're based out of the U.S., one of the things that we've noticed is that there's a lot of money at the top going towards banks and 4 to 500 companies. At least with this notion; if it is not stated clearly, it is implied that this is going to create jobs, and we know from our research that 80% of new jobs are created in small business of ten employees or less.

This also includes non-profits. And so the question is, in this discussion it seems that we're kind of focused on this large, macro discussion. And when really, I think, the innovation is going to come for those small entrepreneurs. And they've been historically locked out of opportunity in terms of getting any kind of funding.

If you do not reach a certain threshold, you cannot go to a bank and get finance as they are going to be looking at some very traditional numbers and I think this is an opportunity for us, at least my organization believes this is an opportunity for the US to lead the way in providing innovation they comes from the communicable is suppose to what else now work in turns up innovation coming from co-operations.

what is the I thought on that
Great. The lady just few rows behind
I am Joann's Wicky and I'm a media entrepreneur. This is particularly to Sir Ronald. You mentioned several times about the industry trying to 'fix' the system.c I would maybe say that there's an opportunity right now, instead of trying to fix a system that may be outdated to our needs, what are your ideas on what would be the perfect new system and could social enterprise not be working hand in hand with the government to creat pilot projects so that they don't fail openly, they can try and work in partnership and may be, the opportunity is to sell into government.

This opportunity is for win-win. Great, let me go over to the gentlemen over there. Well, we have get from Streisand Films. If I can come back. but in the issue of regulations preserving important. we have a very interesting experience in france the french government has decided the belgian of 2009 which have a pension plan.

Must include in the pension plan, a social investment fund.

A social investment fund means that they have to invest at least thirty-five percent of their assets in social programs or social projects, and we see companies like Danone just presented two tools, first they are developing a for profit social project which is called Danone Communities, and second they have just launched an endowment fund, $100 million, which is going to finance the ecosystem of Danone.

Which is all the NGO's that are working around Danone inside Danone, because we want to help them with the crisis. First thing is the regulated has the power to influence into force comfort institution to move on those subjects.

Now as you are chairman of the big issue big issue invest with the fund which started from a social enterprise is created an social investment bank as well I am sorry. Let me quote the Great American quote: "A long habit of not thinking a thing is wrong gives it the superficial appearance of being right." Tom Payne, 1776 Common Sense.

It's about questioning everything. So I think there is a danger, that within this time, all we are doing, is mending, repairing a system and not creating the innovation. I think there is a danger engaging in government that we transfer in government, a government monopoly of funds, and a government monopoly of thinking into the private sector.

I think what we are trying to do is actually create a new space where we are saying traditional philanthropy over hundreds of years even with its reinvention of venture philanthropy, has not dismantled poverty. I think we are in danger of imitating a market. They used to tell us in social enterprise , you are addressing market failure, but where is the market failure, cause it wasn't with us, and there is a real danger that we imitate the market failures I think what we have to do in our challenges is creating something where it's not a Ying or a Yang, it's not a balance, it's not a blend, it's not an emulsion, it is actually something that is new, and that newness will be taken up by both the investors.

And most important, coming back to that point, it's the entrepreneurs that we need to engage in, that affect the thinking. And it's no reflection on you, the panel, or the panel before. I said it before, but in the financial workshops, the two of them, not one entrepreneur, social entrepreneur, there's been financial entrepreneurs, not one social entrepreneur sat on the platform.

There is a danger that people looking down and saying, this is what we think it should be, and not asking us what we think it ought to be.

Yeah, I think. I think we have several social entrepreneurs here, but let's actually go to the final. Unfortunately time is up really so we're gonna have our, those questions and comments will be responded to and any final point that each panel would like to make should also be included in the wrap-up.

We're gonna go in reverse order. So we're gonna start with you, Sam, then Jan, then Dronny.

Well actually, I think the issue of community activity is actually quite important with that. I am from Atlanta, Georgia, and the community foundation there has actually increasingly look to create funds availability for not only arts institutions, but local institutions and small institutions in a lending And they are.

And I actually think, solutions are best, when they are local and to the point. Earlier, that it's the social entrepreneurs it is small, and if you can start small, it has a better chance of finding greater success that can be grown from that. A big tendency of taking these broad macro issues and trying to apply them down, is that they frequently don't fit particularly well.

If you can find the solutions locally and bring them up, we're much more accountable with that. And that's actually, kind of the genesis, the microphone answers well. So hopefully, kind of answering 2 of those pieces, we think, including the social entrepreneurs in that, that's because that was the best ideas would be generated is on the ground with that.

With that I think we were increased about the active reason taking place to the market we come from the private involved space but we actually have public private partnerships with number of government institutions. Again what we view is if we can find those things that can happen where they can encourage participation through government activity for a defined period of time and then exit.

We think that's actually healthier longer term and you build better sustainable entities with it. make my, start my last intervention by saying I want to applaud the audience because these have been such a very good points that have been drawn out by the across the panel, and I'm particularly pleased to have had attention drawn to the move in France, because I think that really, it's one of the things we do need to create this kind of change and we need to be looking at what's happening beyond individual country borders.

We didn't talk a lot in this panel about exactly how we are going to take advantage of the change in the international architecture, but I would think some of these ideas, if they can come up at the level of the G20, using the positive example of what France has done, where certain countries have led the way, we have to be thinking at that level, as well as, I would totally agree with all the points made about, about thinking locally and then scaling from there.

For locally is crucial and the reason for a financial wholesaler is, a lot of small local organizations find it very difficult to subsist on a hand to mouth basis. In the UK there are 169,000 charitable organizations organizations registered with the charity commission, we reckon three quarters of them have financial reserves of less than three months, so that's, you know the nodding your heads.

You know what it's like so local is crucial. With regard to the other two questions, which both have to do with the role of government. I think government has to play an enabling role.We are not asking government to do it for us. It's the fact that government is unable to solve many of these social problems that puts us in a position to try and do different approaches.

And I think one has got to focus on some major initiatives of the kind that you've just described. If one could manage to use that precedent in order to create a social investment class just because there's an edict that pensions funds and foundations have got to invest in this, that would be fantastic way to do it.

It's not that we are not working in a spirit of cooperation with government, we are, it's that the time frames that governments are using still for our sector are the old time frames. In the financial area and the economic area, they are on the war path, they should be on the war path, where such an investment is concerned.

I'd just like to add a final word myself. I mean I've been thinking a lot about capitalism and its relationship to philanthopy capitalism. Capitalism is been able to succeed so often is being to understand the crisis of tremendous opportunities of many other great companies past century were formed at the bottom of crises by people understanding that the world had changed, and that they had skills that they could use and new way I think the challenge for this audience is what happened on September fifteen last year for the game shifted, and dramatically, in your favor from the old system, but the, to make the most of this opportunity you need to be discontinuous in your thinking You need to understand that you mustn't just keep doing the same old thing, but you need to really go back to first principles.

And, actually, you'll find within your organizations all sorts of things that you didn't regard as particularly important, but that actually may be very, very valuable in this new world.

I've thought a lot about this Teach America, or Teach The World, or whatever it's now called. It's brilliant at figuring out graduates, which graduates that want to work for it, are actually capable of work in some of this areas and which would be completely useless. There's going to be a huge flood of people who are qualified who want to work in your sector now and, you know, you need to figure out which ones you want and which ones you don't want.

And some of your organizations are very, very good at doing that and how you share that knowledge amongst the community, for example, will be a make or break issue for whether you can really make the most of this great opportunity. I think there's going to be all sorts of assets that you have in your organizations.

that you might overlook because you continue to think the old way or often look through the fresh lens. So I think this is a great opportunity, I think the panel has been tremendously inspiring. So I'd like to thank them all.

Session: Capital Markets In Crisis: Threat Or Opportunity?

2009 | Investment

Videos

Capital Markets In Crisis: Threat Or Opportunity?

Audio

SPEAKERS

David Blood

Jan Piercy

Matthew Bishop

Sir Ronald Cohen

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