Foreword 2014: Social Impact Investment

The recent financial crisis, the resulting unemployment and the shrinking public revenues of many European, as well as other countries, has highlighted the urgent need to find new ways to address social problems. Governments around the world are heading toward a massive gap between expected demand for social services and their ability to pay for them. Therefore, society must find innovative and creative ways to address the deep-seated social problems that are both an economic burden and can put the fabric of society in a dangerously skewed position.

Capitalism largely ignores its social consequences. Despite governments' efforts, levels of social and economic inequality have remained high in all countries, and prevailing social problems such as unemployment, poverty, homelessness, recidivism, drug addiction, and school dropout rates remain deeply rooted social burdens. The social sector, traditionally referred to as the voluntary, nonprofit, or third sector, has done its best to solve social problems that were inaccessible to direct public efforts. However, a closer look reveals that most third sector organizations are woefully underfunded and most only have funds for a few months. As philanthropic giving declines in parallel with the available funding of deficit-ridden governments, it is clear that solving social problems is an ever-increasing challenge.

Eight years ago when I left the world of private equity, I was already committed to developing the market for social impact investing. Social impact investments are a response to the urgent need to innovate in the way we address social problems. This type of investment is designed to deploy capital in a way that generates both social and financial returns.

The goal is to combine financial resources and entrepreneurial skills in solving social problems.