Managing Philanthropy after the Downturn: What is Ahead for Social Investment?
University of St. Gallen
January 1, 2010
Viewpoint, pp. 10-21, 2010
This article proposes to look beyond the immediate adjustment in the philanthropy and social investment space that resulted from an 18-month recession in the United States, the world’s largest economy, and recessions in many other countries around the world, which has left foundation endowments in the US down 30-40%, while Europe foundations report a 20 to 30% loss. Rather, the article asks where we are headed over the medium term. What is an appropriate response is contingent on the specifics of each situation, but three general points need to be considered. First, while the downward adjustment will hold back net worth and endowment asset values for years to come, pre- and post-crisis investment strategies for wealth in general are nevertheless projected to remain relatively sticky. The big question is: will social change investment strategies remain similarly sticky, or will we see significant shifts to innovative approaches? Second, unlike traditional investments, social investments – defined as for-profit social investments that create demonstrable social impact as well as financial returns for investors – performed fairly well during the crisis. In fact, some argue that the crisis has even created takeoff conditions for the social investment field, recently relabeled “impact investing” in an effort let by the Rockefeller Foundation, which forecasts the emergence of a USD 500 billion impact investing industry over the next five to ten years. But if there is such significant demand for impact investing assets, how can we source an ad- equate supply of suitable investment opportunities in practice? Third, while significant attention is appropriately focused on how to best deal with the fallout of the recent financial crisis and the maturation of the for-profit social investment space, we need to consider the broader set of forces that are reshaping the field, in particular the emerging paradigm of a more globalized, entrepreneurial, and collaborative philanthropy. Ultimately, both philanthropists and grassroots agents exercise leadership in their respective domains, and this raises the question how different leadership strategies will help reshape the philanthropy and social investment space more generally over the medium term. In looking at philanthropy after the downturn, there are some reasons to be bullish. This article examines two factors in detail that will influence how fast the social investment field can grow, and how big it will ultimately become. First, on the demand side, can we devise ways to share risk and thereby enlarge the pool of capital financing the resolution of social and environmental challenges? And second, on the supply side, can we close the emerging social entrepreneurship supply gap? The article articulates a social investment framework for those who are keen to engage, but are often not quite sure how.
Number of Pages in PDF File: 6
Keywords: Philanthropy, social entrepreneurship, impact investing, adjustment, recession
JEL Classification: L31Accepted Paper Series
Date posted: March 10, 2010
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