Thursday 27 October 2016 23.28 BST Simon Freeman
In March the Paul Ramsay Foundation invested $600,000 in its first social enterprise: the Vanguard Laundry in Toowoomba. Created by serial social entrepreneur Luke Terry, the commercial laundry business will employ up to 100 people with mental health problems over its first five years, providing a supportive workplace and a pathway to mainstream employment.
It is due to open in early December, and is likely to be Australia’s largest mental health employment project. Mental health care is a big issue for Australia. In 2013 the economist Nicholas Gruen estimated that in 2013 the total costs of mental illness had reached $190bn, with 19 million absentee days attributed to mental illness each year. Yet only 7% of all healthcare spending is invested in mental health.
There were many reasons the Paul Ramsay Foundation made that investment, not least the variety of social investors and federal government funding already committed, and a robust business plan. Most importantly, Vanguard had secured a nine-year contract to supply laundry services to St Vincent’s hospital in Toowoomba, which gave the foundation confidence it was an investment for the long term and a model that, if successful, could be replicated in other sectors.
It’s the first stop on a long journey for the foundation within the emerging area of impact investing. The challenge is to try to use social enterprise as a tool to work towards achieving systemic change in the areas in which it works. The more successful models that can be developed show that investing in social impact, whether by creating jobs, investing in education, disability support, social housing or the environment can be done while still achieving a financial return.
That ability to make a profit while achieving social impact is extraordinarily powerful and goes to the heart of challenging the public perception of “charity”. While it is still very much an emerging sector globally and locally, Australia has a great opportunity to be at the forefront of pioneering impact investment.
If private capital such as foundations and investors can continue to develop successful pioneering models, such as Goodstart Early Learning and the Newpin Social Benefit Bond, the opportunity may present itself to access some of the vast funds within Australia’s superannuation system. Although the field of investments is small, it has nonetheless been able to demonstrate that returns of 8to 12% are achievable at the same time as achieving social good.
Australia’s superannuation industry has approximately $2tn under management which, according to Deloitte, will double by 2025. That rapid increase is likely to drive the need for diversification into alternative asset classes. The challenge for the impact investing sector is to position itself to gain access to that capital and be seen as a legitimate alternative investment class. The role of private foundations and social investors is not necessarily just as the end investor, but to develop the capacity of the sector, to take the risk inherent in building demonstration models and to develop the data and evaluation systems that will allow the growth of the impact investing market.
While there is a clear and obvious groundswell of support for impact investing and it is an exciting opportunity for philanthropy, we need to be mindful that it isn’t going to be possible to apply it to every single area of interest and there will always be a place for traditional grant capital. What is key for us is to use all our resources in the most effective way possible.
Simon Freeman, chief executive of the Paul Ramsay Foundation, spoke at the Impact Investment summit this week
Source: Guardian News and Media
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