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Our work with funds like Cheyne Capital

By Iona Joy 5 December 2014

Social investment is, in some quarters, a little controversial. Detractors say things like: ‘Hedge funds and other new entrants don’t know anything about the social sector’. Or: ‘It’s wrong that people can make a financial return from social problems.’

This doesn’t put NPC off. Our role is independent and neutral: we have no vested interest in the social investment market growing; rather we see social investment as a potential funding tool to further the aims of charities and funders to increase their impact.

We take the side of social impact, which ultimately means the people that the investment is trying to help. If an investment doesn’t advance the cause it is seeking to address, then it shouldn’t happen. Social investment should be better than the available alternatives (‘additional’ in the jargon), which could be: another funding option for a particular project (surprisingly common); that the project is not funded but another project does the job instead (less common); or that nothing happens (common).

If social investment is better than the alternatives, then it is creating social impact.  ‘Nothing happening’ is rarely an attractive alternative, so I personally tend to favour an investment taking place, even if risky and imperfect. Perfection is often the enemy of good.

We are surrounded by a sea of need, with charities struggling to scale up to meet need. The chronic under-investment by successive governments in housing, social property and infrastructure has resulted in a huge hole which only very large amounts of capital could begin to fill. Charities surviving on a few grants here and there just won’t do it. And government isn’t about to increase its own borrowing.

Attracting private investors with financial muscle to support development seems a sensible alternative, if the finances can be made to work. Similarly, if government agencies are tentative about investing up front to solve big social problems, but are happy to pay for results if someone else solves the problem, then again, why not get private money to invest?

This is why NPC has been working with new funds like Cheyne Capital’s social property impact fund, launched last Friday with £12m of support from Big Society Capital. Cheyne can access new investors and large pools of capital that the social sector (no disrespect) can’t get near. And to NPC, large amounts of capital can get developments like affordable housing, high-quality housing for older, disabled, or vulnerable people, moving along more rapidly.

We at NPC spend all our days thinking about social impact, and help newcomers to the social sector like Cheyne do the same. We support the team to develop good quality, practical and proportional processes in social due diligence, impact assessment, monitoring and impact measurement.

We’re finding Cheyne is needing little encouragement to take social outcomes seriously—the team are relentlessly curious about how to improve people’s lives in reality. They recently got very worked up about flooring type as a major factor in falls fractures and whether housing developers factor this into building design. Who knew?

On several occasions we have found ourselves acting as a cultural bridge between the financial world and social sector—several of us at NPC came from the dark side (banking, investment, private equity) but now happily inhabit the social side. Seeing all points of view can facilitate conversations between parties who violently agree but don’t always speak the same language.

We hope to see many more large-scale investors coming into this market to accelerate social change, by putting social impact at the heart of their investments.