Foundations are being put off social investment because of its complexity and the lack of opportunities, according to a report for charitable funders released today by the charity think tank New Philanthropy Capital.
Best to Invest? A funders’ guide to social investment says that charitable foundations face many barriers to becoming involved in social investment.
It says many funders struggle to understand complex investment mechanisms such as social impact bonds and are worried about whether social investments comply with charity law.
Most foundations outsource decisions to investment professionals who do not understand the structures of the social investment market and are not able to advise charities to put money into investments that are not listed on an exchange, it says.
The report says that other barriers include "the high costs of involvement, the lack of in-house skills, the unclear legal and regulatory environment, and the need for endowed foundations to maintain a good financial return to continue their grant-making activities".
Dan Corry, chief executive of NPC, said in a statement that social investment intermediaries should consider developing simple products that potential investors could easily understand.
"A lot of work has been done on investee readiness, supporting organisations to think about whether social investment is right for them and how to attract funders," he said. "However, there has been much less work on preparing investors, who we have found are nervous about some of the uncertainties attached to social investment. Our research suggests that any organisation seeking social investment should aim to develop the simplest product possible.
"Some of the most basic forms of social investment – such as loans and mortgages – can in fact be the most effective."