Australia Still Not Investing in Social Change

The social purpose sector must think differently about how to tap into new capital to fund social change, the outgoing CEO of Social Ventures Australia Michael Traill said.

In a hard hitting speech – the inaugural Social Ventures Australia Oration at the NSW Parliament House – Traill told an audience of politicians, philanthropists, funding bodies and leaders from the social purpose sector that currently an efficient capital market for social purpose outcomes doesn’t exist.

“In too many cases we have funding by heart, not head. We have funders obsessed with process and not results. We often have no funding for that most obvious of beneficiaries: well-run programs and organisations with a track record of results that need support and basic funding of administration to do more of what they do well.

“We also think very narrowly about where the funding comes from. We tend never to think about accessing funding for purpose from the biggest source of funding around – the $1.8 trillion superannuation market.  

“If it doesn’t come from Government or known philanthropy sources, it doesn’t exist and this has to change,” he said.

Michael Traill was the founding CEO of SVA in 2002 after 15 years as a co-founder and Executive Director of Macquarie Group’s private equity arm, Macquarie Direct Investment.

Traill is Vice Chair of GoodStart Childcare Ltd, Chairman of the Opera Australia Capital Fund, Assetic Pty Ltd, and a Director of M H Carnegie & Co.

He is stepping down as CEO in October and he described his parting speech as a “call to arms”.

“The great privilege of the 12 years since SVA started is we’ve had the ability to access remarkable talent in our organisation and build an exceptional network. This has been an alliance of partners, funders, thought leaders and doers across all the sectors who share our view that things can be done differently and better.

However, he said despite a generation of economic growth and in many areas quite significant funding growth, the data tells us we haven’t made much progress in what to us is the core moral and economic issue we face in this country – that many Australians live in a continuing cycle of exclusion and do not participate fully in the community.

“The real focus for all of us must be:  How do we build smart and sustainable ways of accessing capital and funding for the right programs?  How do we ensure they have the right talent to build social purpose organisations and change programs that are genuinely making a difference to close that opportunity gap?”

To do this, he said, the sector must be bold and clear about what it wants.

“We have to bring mainstream funders into the game – the industry and superannuation funds, including self-managed funds.  The institutions are typically luddites in embracing any new form of investment class so we have to find smart ways to accelerate their pick-up of impact investing deals.

“And we need political leadership.  The big funder is Government and where change is happening, it is driven by political leaders who get the need to take risks, be clear about outcomes and use their soapbox to prosecute the case.”  

As well, he said the challenge of defining performance expectations and target outcomes in the ‘social purpose’ world is much more challenging than business metrics of performance, but the sector must address what it takes to do this better.

“Because if we don’t, we will be having the same discussion in 20 years and in the education space alone the Grattan Institute estimates we will have wasted a potential cumulative GDP contribution of close to 0.7 per cent a year.”

Traill also turned his attention to the philanthropic sector.

“I’ve heard a lot of criticism from the philanthropic sector getting stuck into Government funding. But the truth is there is very little strategic and outcomes focused philanthropic funding either.

“What particularly disturbs me is what we have come to know as the ‘Zone of Funding Disconnect’, which is a product of the failure to apply sensible strategic and business disciplines to philanthropy. Of all the bottlenecks we’ve identified, what I have come to call the ‘Zone of Funding Disconnect’ causes most frustration and grief.

“How is that high quality, well run ‘for social purpose’ organisations, of which organisations like SVA and AIME could reasonably claim to be examples, find it so hard to access the kind of growth capital that is pivotal to their continuing maturation and development?

“In my prior life in private equity we actively chased opportunities to invest capital in businesses that were building a track record and were run by high quality managers. Yet in the new ‘social purpose’ game I am playing, organisations like SVA hit a roadblock.

“The roadblock in this country is that it is very hard to get funders to provide the significant chunks of capital needed for sustainability.”  

Traill also took a swipe at what he described as the ‘Audit Cop’ funder – those who say,“we really don’t like funding administration and capacity for organisations, we prefer to fund programs.”  

“And how many businesses would you invest in that have no depth around marketing, finance, strategy?  Do you think these people drop off trees and work for nothing because they feel such bliss about working in the ‘social purpose’ sector?  If you rate anything that SVA has done, it rests very heavily on our ability to access – and pay – for high quality people who have these skills & stick with us for the long term. Is this not bleedingly obvious?!?)

“This failure to fund for high performing for purpose social organisations is a disaster. It throttles the capacity of proven for social purpose organisations to grow. “

Traill said social purpose organisations must be prepared to be explicit and brave in measuring their outcomes.  

“And most especially, tell the truth when things don’t work as you wanted… you might be pleasantly surprised at how appreciative funders are at honest feedback on that.

He also said social purpose investors must use their business brain.

“If you want to make a real difference, as opposed to practicing ‘spray and pray philanthropy’ please use the same energy, intellect and focus you probably applied to the process of building the wealth that enables you to contribute!”

The event was introduced by NSW Treasurer Andrew Constance and AIME CEO Jack Manning Bancroft.

The full transcript  of the speech entitled Investing in social change: building an efficient capital market for social purpose is available at SVA’s Quarterly Publication.