Sir Ronald Cohen on social finance: “The next big thing”

In a recent article in the Telegraph, Sir Ronald Cohen, the “father of private equity” in the UK and founder of Apax Partners, is quoted as saying “An important part of the capitalist system is having a powerful social sector to address social issues.”

Those of us interested in social finance in Canada have long looked to the UK in general, and the work of Sir Ronald Cohen in particular, for advice and direction. Sir Ronald (as he is affectionately called) recently addressed student at Harvard Business School telling the students about the next big thing in the business world – social finance.

“If I had been leaving Harvard in 2010, this would be the area I would want to be going into,” says Sir Ronald. About one-fifth of recent Harvard Business School graduates agree given that they have been drawn to “social enterprise-type organizations.”

Sir Ronald’s goal is to connect the capital markets to the social sector. “It is not enough to increase the standard of living at the high end. It is right at the same time to worry about those who are left behind,” he says.

It would be a shame to waste the economic crisis that we have just endured and not learn lessons from it. Sir Ronald offers the following reflection and I would suggest hope that “societies everywhere will come to the conclusion that an important part of the capitalist system is having a powerful social sector to address social issues, because government doesn’t have the resources.”

Sir Ronald and his colleagues have formed an organization appropriately called “social finance” and have come up with the concept of a Social Impact Bond – “a contract between a public sector body and Social Impact Bond investors,” in which the former commits to pay for an improved social outcome. Investor funds are used to pay for a range of interventions to improve the social outcome.

“By enabling non-government investment to be utilized, Social Impact Bonds will lead to greater spending on preventative services. These interventions can have a direct impact on costly health and social problems.

“Social Impact Bonds are a unique funding mechanism, in that they align the interests of key stakeholders around social outcomes”.

We are closely watching the development of social impact bonds in the UK to determine their possible applicability in Canada. For more information on this concept see the UK Social Finance commission’s “Social Impact Bonds”.

But one thing we and Sir Ronald want to make clear is that this is not to be confused with privatization. “It is not a privatization because it isn’t being shifted to the private sector,” he says. “It is moving to an entrepreneurial approach to deal with these issues.”

Forty years ago, Sir Ronald revolutionized private equity in the UK. Let’s hope he is as successful in his efforts to promote social finance and those of us in Canada interested in mobilizing increased capital for those in engaged in social purpose work will be right with him.