Tumultuous times herald the dawn of '3D investing'

Investing is no longer a two-dimensional exercise because it now includes social impact, says Rodney Schwartz of ClearlySo

Rodney Schwartz
Rodney Schwartz

Recently, we at ClearlySo had the privilege to conduct and publish research on behalf of the City of London Corporation, the City Bridge Trust and the Big Lottery Fund. It's called Investor Perspectives on Social Enterprise Financing - the link to which is accessible from our home page.

Written by Katie Hill, this 178-page report provides a comprehensive insight into City thinking on social enterprise investment. Katie interviewed about 60 professionals as part of the work. She found that there is no silver bullet, but rather a number of small developments that - when taken together - will improve the level of social investment.

She concluded that there is no such thing as the 'City'; the term describes a broad array of financial institutions, pension fund managers, private equity investors, and so on. Each has different needs, objectives and approaches and needs to be understood separately rather than amalgamated.

Another finding is that the opportunity provided by the Big Society Bank and the restructuring of the state offers a once-in-a-lifetime chance to accelerate social investment and must be seized.

The launch of the report took place in the beautiful venue of the Livery Hall, adding further gravitas to the proceedings, which were headlined by the Lord Mayor. Perhaps, when presented with such awe-inspiring surroundings, one can become prone to grand statements, but I felt as if the meeting could herald the start of a new era of institutional investing, and was sufficiently moved to call it the start of '3D investing'.

In my presentation, I noted that investing had been a two-dimensional exercise since about 1980, as investors sought to maximise risk adjusted rates of return, but that we were now entering a world in which a third dimension had entered the calculation: that of social impact.

Before discarding this notion as fanciful, I should point out that there are many examples of such trade-offs being undertaken.

How else could the Ethical Property Company, a firm that makes it very plain it will never try to maximise financial return, have been able to raise roughly £20m over the past decade? Although most of its investors were individuals, some were from the City and were present in the Livery Hall at the launch.

This is also not the first time a new dimension has been added to the investment equation.

When I entered the financial world in 1980 as an analyst with Paine Webber, investing was one-dimensional. Portfolio managers spoke of "average total return" over the life of an asset or portfolio. The tumultuous nature of the 1970s meant investors became more aware of their preferences for lower volatility. Hence, the birth of '2D investing' and the concept of 'beta' - a measure of how sharply a stock tends to move in relation to the market.

Given the nature of our times, is it so surprising that investors are becoming increasingly aware of their preference for positive social impact? Thus dawns the era of 3D investing. Anyone know another suitable Greek letter?

Rodney Schwartz is chief executive of social venture capital website clearlyso.com

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