Rodney Schwartz: Remember what capital can do for real people

A presentation by a formerly homeless man brought home to our columnist why we should never forget to look at the impact social capital can have

Rodney Schwartz
Rodney Schwartz

We have had the best quarter in the history of ClearlySo and have closed 15 deals worth more than £23m. I guess we are not that different from other intermediaries. We talk about deal size, target internal rates of return, transactional complexities, the nature of the investors and the investees. Sadly, we speak too infrequently about impact. This is despite the fact that we are part of the impact investment market.

One investment transaction that brought this home to me involved Framework Housing, a housing association based in Nottingham. As with many of the investment transactions closed this year, this one, worth £5.75m, had its complications. But it was not the rates of return or the asset-backed nature that I will remember - it was a presentation given by one of its beneficiaries a couple of years ago.

We were asked by Coutts Bank to bring four impact investment opportunities to its high-net-worth clients in Nottingham for an evening of investment pitches and canapes. All the presentations were strong, but Framework's stood out. Chris Senior, who managed the transaction for the association, outlined what it had planned, then sat down and introduced one of its tenants, whom I shall call Jimmy.

Jimmy read from a prepared script about his experience as a homeless person. His hands shook as he told of his life before he came into contact with Framework and how, with its assistance, his life had been transformed. There could not have been a more powerful way to understand the true nature of what Framework does for its clients. It saves and transforms lives. When I returned to the office, I told Jimmy's story to colleagues. We agreed that if we could help Framework, the year would have been a worthwhile one.

Many organisations do an excellent job of estimating and reporting on the impact they generate. For intermediary organisations such as ClearlySo, there is less opportunity to bring about impact directly. The social impact achieved is through the charities and enterprises we help. There is therefore a tendency to capture the essence of the impact generated in terms of the deals done and money raised. The assumption is that there is a correlation between the impact investment secured and the social value generated. But there is a risk in breaking the connection between capital raised and impact generated.

Financial intermediation in the mainstream economy also began with noble aims. Banks raised funds for entrepreneurial organisations that endeavoured to build great companies. When it worked, the social value was measured in the jobs created and the prosperity achieved. As time went on, the purpose of enterprise became increasingly disconnected from the sums raised, which became the purpose in and of themselves. Some of this pointless financial market activity contributed to the crash in 2008. If we are to avoid this in the impact investment sector we must remain attentive to strengthening and reinforcing the links between financial inputs and impact outputs. Otherwise, we will miss the point of what we do and why we are doing it.

Rodney Schwartz is chief executive of ClearlySo, which helps bring impact to investment

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