Interview: David Hutchinson

The chief executive of Social Finance says it is developing more than just social impact bonds

David Hutchinson
David Hutchinson

If you're interested in setting up a social impact bond - or any other social finance scheme, for that matter - the chances are you will end up speaking to David Hutchinson, the former investment banker who now runs Social Finance.

The core purpose of Social Finance, he says, is to find new ways of overcoming financial barriers to social problems: "We identify financial barriers to social change, develop a solution to the problem and deliver that solution.

"We aren't just a consultancy. Delivery is a major part of what we do - at the end of the process, we make something happen. A new way of solving the problem will be delivered."

Social Finance is a not-for-profit body that was set up in 2008 to see what progress could be made pending the establishment of Big Society Capital, which was eventually launched last year. It is now considered one of the key organisations driving the growing social finance revolution, and its most famous brainchild is the social impact bond - a payment-by-results contract in which investors, rather than charities, fund the delivery of the contract.

Social Finance piloted the first SIB in 2010, for a service working with offenders released from Peterborough Prison, and an initial assessment earlier this year showed it was working well. There are now 13 SIBs in operation - four run by Social Finance - and more are on the way.

The organisation's annual income has increased from less than £500,000 when it started to £5m now. Half comes from grants - mainly Big Lottery Fund money that is coming to an end - and half from fees. It employs about 40 people, some of them former financiers who, like Hutchinson, could probably earn a lot more elsewhere.

The Social Finance approach has found favour with national and local government, and a growing number of public bodies are coming to it for help with issues such as children in care, substance abuse and housing. But Hutchinson says SIBs make up only 40 to 50 per cent of his organisation's activity and that it is working on about 17 projects from which it expects to earn income.

These include advising organisations interested in social investment, talking to organisations in other developed countries that are interested in SIBs and working on a development impact bond to fund the work of aid organisations. It might also develop a fund to make investments of its own.

Social Finance has to work with a variety of stakeholders, Hutchinson says: "We have to be trilingual. We have to speak the language of investors, commissioners and social organisations. They don't necessarily talk too well together. We try to represent the position of the party that isn't in the room.

"We always start with the social problem and then look at the money. It has to be a problem investors and commissioners want to solve, and that delivery organisations can solve.

"If you can make the money flow more logically, you can get more of it to the people who are best at solving the problem."

So where does Social Finance go from here? Hutchinson expects earned income to rise and grant income to fall. Overall, he expects modest continued growth, but not the near-exponential increases enjoyed so far.

"The problem is how long it takes to analyse a proposal," he says. "But as we get more knowledgeable, it becomes quicker; and as our reputation improves, it's possible to charge higher fees."

One ambition is for Social Finance to become, or create, a "social prime" - a large organisation capable of bidding for central government contracts, financed by social investors. "We would have to bulk up a long way to play that role," he says. "It is something the market is crying out for, but we're a long way from being able to do it."

He is also ambitious for the wider social investment market and says the goal - mentioned in a recent Big Society Capital report - of it becoming worth £1bn by the end of 2016 is achievable. The quality of investment opportunities has risen dramatically in the four years he's been involved, he says, and more professional investment funds are putting in money.

Hutchinson is also confident that more private investors will come to the market as it develops a track record, but says it is still likely to be short of investors who will share the risk of a deal with charities rather than just offering secured lending. Anyone who gets involved in social investment is unlikely to be motivated primarily by profits, he adds.

He is aware that his organisation, and other social investment bodies, have attracted criticism, particularly from those who feel they are attempting to marketise the voluntary sector. "I would say they should judge us on results," he says. "I hope we improve the way the sector is commissioned."

CV:

2009: Chief executive, Social Finance

2005: Head of UK investment banking, Dresdner Kleinwort

2004: Co-head of global mergers and acquisitions, Dresdner Kleinwort

1983: Banker, Dresdner Kleinwort

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