Devices such as collateralised debt obligations and credit-default swaps have turned out to be spun out of invisible thread. This was so blindingly obvious the film ‘Pi’ was made years ago. Modelling through the Gaussian copula techniques never built in a market portfolio of investors using the said technique, and there was no stress on how secure such a system was from bonus-mad bandits prepared to ignore the very risks they could conceal (thus wrecking the model). Social finance, a movement based on the belief that financial innovation can be used directly to help society’s neediest people is now on the rise. There’s just been a conference in San Francisco for SoCap09, dedicated to building “social capital markets”. The event was abuzz with novel ideas such as a “social stock exchange” and “sustainable hedge funds”. The Clinton Global Initiative in New York, the Global Impact Investing Network (GIIN) is due to be launched. This is, in effect, a commitment to create a new asset class—impact investing—yielding a financial return alongside a social or environmental benefit. The network’s 20 or so members include big banks (Citigroup, Deutsche Bank, JPMorgan), philanthropic institutions (such as the Bill & Melinda Gates Foundation and the Rockefeller Foundation), the Acumen Fund, which invests charitable donations in firms supplying health care, clean water and so forth in Africa and India, and Generation Investment Management, a green-tinged fund manager co-founded by Al Gore. The GIIN’s goal is to share information on what works and what does not, to agree on common language and measures of performance, and to lobby for helpful laws and regulations. The creation of just such an organisation was a priority set out earlier this year in a report by the Monitor Institute, the research arm of Monitor, a firm of management consultants. If this group succeeds, the report argued, within five to ten years impact investing could grow to $500 billion, around 1% of the world’s total assets under management in 2008. The rising interest in social finance is the product of several trends. First, the financial industry and its clients spy a way of making money and doing good at the same time. Many impact investments are in emerging economies, which are expected to grow faster than developed ones. They may be uncorrelated with other assets and thus offer diversification and reduced risk. Impact investments such as the Calvert Community Investment Note (a bond) have performed relatively well during the recent crisis, fuelling demand for them. Bankers also detect a chance to give their image a badly needed polish. Philanthropy plays a part too—especially, it seems, for super-rich investors. Second, more people want to do well by doing good. Specialised intermediaries have sprung up, including several “social investment banks”, such as Total Impact Advisors, which is supported by Calvert Foundation, a pioneer of impact investing, and Social Finance, recently founded in Britain. Social-enterprise clubs are now among the biggest student organisations in leading business schools. Third, there is a growing demand for private capital and skills to be tapped to supply the basics of life and to get small businesses going. Government spending and philanthropy are not enough. Fourth, governments are providing encouragement. America’s controversial Community Reinvestment Act stimulated investment in poor neighbourhoods (too much, critics say). The State Department is expected to give financial support for the GIIN’s efforts to create useful measures of social impact. The British government has given tax breaks and introduced more helpful regulations for private investment in social projects, as recommended by the Social Investment Task Force it established in 2000. In the Netherlands legislation has encouraged green investing.
None of this is really 'new'. Some of us were active in these areas in the 1980s. Looking at some of the people involved now gives me the jitters, but my guess is these are the moves we need to make. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""Minds Eye"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/minds-eye?hl=en -~----------~----~----~----~------~----~------~--~---
