The social investment sector must introduce new investment mechanisms if it wants to attract money from the City of London, according to a report published yesterday.
Investor Perspectives on Social Enterprise Financing, written by the social enterprise consultancy ClearlySo, says 96 per cent of all social investment last year was carried out by only 10 organisations, and only £190m was invested in social enterprise.
"The sector has been heavily dependent on government and philanthropy, and these need reinforcement," the report says. "The global pools of capital which operate out of the City of London could provide exactly that."
It warns that several criteria have to be met before the sector can attract institutional investors, such as pension funds, socially responsible investment funds, wealth managers investing funds on behalf of clients and retail banks.
Such investors would need products that offer near-market returns, are easily traded or sold, and are relatively low risk, it says.
It says institutional investors also want products with a robust measurement of social return, larger investment opportunities, and products and managers with a proven track record. However, few investments of this type are available.
"When we matched specific preferences of different institutional investor types against available products, we found certain gaps where there were no suitable UK social investment products on offer," the report says.
The report was funded by the Big Lottery Fund, the City Bridge Trust, and the City of London Corporation. It was based on 55 interviews with institutional investors, including pension fund managers, banks, private equity firms, independent financial advisers and charitable foundations, as well as contributions from social finance experts from organisations including Deutsche Bank, Coutts, UKSIF and Venturesome.