Tuesday, March 07, 2006

Foundations: MIA???

Thanks to John Berger, The Emancipation Network, for pointing to this Alliance interview with Jed Emerson.

It's a solid primer to the Skoll World Forum theme for 2006 - the current social capital landscape.

Two questions/answers from the interview stand out:

What are the challenges in developing this hybrid capital market?

    I think there are a number of problems. One is a fundamental financial illiteracy on the part of many of those involved. You have a lot of folks who understand the traditional charitable approach and a lot who understand the mainstream market approach. So you have two sets of people trying to solve a common problem who are using different language. It’s the Tower of Babel in the social sphere. A lot of time is spent just trying to figure out how many chairs to put around the table, never mind what’s on the table for discussion. We need, as a field, to come together to understand what it is we are actually talking about. We have people referring to grants as investment with a certain set of assumptions behind the term, and other people talking about investment with a completely different understanding.

    I also think we have a capital mismatch. There is potentially a lot of mainstream capital that we could access, but having said that, a lot of capital is not appropriate for the type of work we’re trying to finance. The flipside is that we’ve got a lot of opportunities to structure grants in much more creative ways than we have done to date. Loan guarantee funds speak to that, but we need to be much better at documenting and sharing information about how to actually do some of these deals. You have to be conversant with some of these techniques in order to understand the opportunities and the dangers.

What do you see as the dangers?

    We are beginning to move into areas of risk that we don’t really understand. There are expectations that this type of blended value investing can ‘do good’ without compromising financial performance or social value. In the long term, that might be so, but we need to acknowledge that we are trying to put two parts into a whole that may not actually fit right now. I’m a little concerned that a lot of the things that we would want to see in an efficient capital market are not in place, and I’ve seen money start to move as if they were. We need to be very careful, because all we need is one of these funds to go south and no other deals will be done for the next ten years because everyone will run to their respective corners.

    That’s why I think this conversation, both at the Skoll Forum and with the Alliance issue that you’re going to release in the fall, could not be more timely in terms of bringing people together to discuss these hard questions. We’re going to have to embrace a common framework, both conceptually and in practice, for understanding exactly what these opportunities are, what the risk profile looks like, and what financial returns are realistic from these various instruments. Unless we do these things, we’re going to be in a bad situation in a few years.

For further discussion of social capital markets, look at this exchange at SocialEdge.
Tags: for:vsef, SocialEdge, Social Investment, Social Capital Market


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