Most investors are wary of the space due to the lack of consolidated data and disaggregated and illiquid private market deals, which make it difficult to assess risks and gauge the bottom line social outcomes, which affect returns.
The Task Force on Social Impact Investing, chaired by Michael Trill, co-founder of Macquarie’s private equity operations and founding CEO of Social Ventures Australia, made several recommendations designed to support the market, by encouraging government to play a leadership role in reducing such risks.
Trail says he can’t comment on his staff’s recommendations because they have not been published. But industry sources who participated in the report say it included a call for an early-stage institution to encourage entrepreneurs and an office in the federal bureaucracy to provide inclusive leadership.
It is understood that the main recommendation is to establish a “wholesaler” for investment with a national impact, such as Big Society Capital in the UK, to anchor the capital and due diligence to support the raising of capital from private investors.
Impact Investing Australia, which has advocated for a similar body in Australia for many years, wants the government to commit at least $200 million to the fund with financial institutions matching it initially.
The report also calls for more results-based funding, which would provide the government with an alternative to giving funding to organizations to provide social services. The recommendations can be applied to managing aged care, mental health, disability, social housing, and education.
In a year-long review, the task force, set up by the Ministry of the Prime Minister and Cabinet (PMC) in 2019, consulted more than 140 organizations and all levels of government. The Australian Council of Social Services and the Australian Business Council broadly support the recommendations.
Rosemary Addis, who represented Australia on the Global Impact Investment Steering Group and the G8 Social Impact Investing Task Force, said the lack of government leadership in recent years has slowed the development of the local market, including setting standards and building investor awareness.
“There has not yet been a coordinated, sustained effort needed to drive the potential of this market to expand,” she says.
As the urgency crystallizes, the government has taken its foot off the pedal. We need the government to adopt its role in building the market. release [Traill taskforce] Addis, who also co-founded Impact Investing Australia, says what people are really looking for is work and delivery.
Without a wholesaler in the market, “the government will miss the opportunity to direct some capital to where it is really needed and get better value out of the general dollar by taking advantage of it in terms of additional capital and the impact it can have,” she says. “Government is not building strength and helping the market.” on doing these things well, in a way that Australia can shape the framework rather than respond to it elsewhere.”
loss of momentum
The PMCs’ decision not to deploy, let alone respond, to the task force’s report – which was delivered to the government at the end of 2020 – contrasts with the momentum that built behind social impact investing in 2018 and 2019.
The 2014 Financial System Investigation called on the government to play a “catalytic role,” which launched a 2017 discussion paper that saw government engagement with states and the Treasury set out a set of high-level principles to guide its participation in the market. There was some funding in the 2017-2018 budget, and then Trail’s Social Impact Investing Task Force was announced in the 2019-20 budget.
Trill says there has been “widespread consultation and has strong support on the key recommendations of the ‘three pillars’ identified in the interim report.” [published in January 2020] Which has the potential to transform the impact investing market.”
“Part of the extensive consultation process included a detailed dialogue with institutions, financial institutions, and impact investors which fueled their appetite and potential commitment to appropriately matching government investment across the three pillars,” he says.
The three pillars are: an early stage foundation to support entrepreneurs; impact of investment “wholesaler”; And more results-based government funding.
Trail will join staff members Danny Gilbert, Amanda Miller and Sally McCutchan on the Impact Investing Australia Board of Directors to continue advocating for policy changes.
Others in the sector say that while the sector is growing, the voice of the federal government is missing which contrasts with a growing number of countries.
“The federal government is missing the opportunity to shape impact investment market development with a more deliberate focus on overall outcomes,” says Dan Madhavan, co-founder of Ecotone Partners.
“The cornerstone is being laid without the government having an active participant and this is a missed opportunity for the country. Although nearly three years have passed without the delivery we had hoped for, the window for government action is still open and the opportunity is still alive.”
Wholesalers have been established in other markets including Japan, South Korea, and Canada. In the UK, Big Society Capital has played a large role in creating partnerships between government, investors and social enterprises.
Big Society Capital has opened £1.7 billion ($3.2 billion) of capital for impact investing since its inception in 2012 and has helped bring 50,000 people into work, 26,000 people moving into adequate housing, 6,700 children accessing child care and 255,000 people receiving Online support for mental health.
“This is the frustrating part, the British government can see clearly and they have taken huge steps to leverage private capital to solve social problems,” says Brandwiner.
The government misses an opportunity. It is not clear to what extent you think this is an important policy to take in the elections, but we encourage the government to publish the report, and work on recommendations to better leverage private sector capital to make a positive difference in this country.”
The recommendations in the report will help free up the capital of the Pension Fund to support the social sector. “We still haven’t been able to unlock mainstream institutional capital, and the wholesaler’s role will be to help facilitate that,” says Brandwener.
“There is a lot of interest in the space and money being raised, but the huge opportunity is mainstream institutional capital.”