Cohen: Social investing could be its own asset class

As LPs get comfortable with the potential for social investing, they are more likely to focus money and resources on the strategy, said Sir Ronald Cohen at a responsible investing conference this week.

Social investing, in which financial returns are combined with social improvements, has the potential to become a new asset class, Sir Ronald Cohen, founding partner and former chairman of Apax Partners, said at the Responsible Investment Summit in Brussels Tuesday. 

Cohen, chairman of Bridges Community Ventures, told delegates he sees a parallel between today’s social investing and the time when private equity was still a relatively new strategy.  

“I think the drivers for [social investing] are as powerful today as they were when I started out in 1972 in creating what became Apax,” he said. 

“Once track-records are established in organisations, it will be possible to assess the risk of [social finance bonds] and to show there is scope for [both] a financial return and a social return. Then I think that charitable organisations, insurance companies and pension funds will begin to allocate,” he said. When allocation starts, investors will appoint staff to look after this social investment strategy, “just as they have expertise in investing in private equity and venture capital today. That is the definition of an asset class,” he said.  

Cohen was speaking at the Responsible Investment Summit in Brussels, which was organised by the European Private Equity & Venture Capital Association (EVCA). His sentiments were discussed by delegates on the sidelines after his speech. 

Institutional investors often have set allocations for asset classes that they have invested in for a long time and are familiar with. Rather than creating a new asset class for social investing, it's more effective to include social investment strategies into already existing asset classes.

Tim van der Weide

While most delegates agreed responsible investing is important, not all agreed creating a new asset class is the best option. “Institutional investors often have set allocations for asset classes that they have invested in for a long time and are familiar with. Rather than creating a new asset class for social investing, it's more effective to include social investment strategies into already existing asset classes,” said Tim van der Weide, ESG advisor and specialist at Dutch pension fund giant PGGM. 

His words were echoed by a number of other delegates. “We haven’t looked at social investing but have adopted an ESG (environmental, social, governance) policy into our portfolio,” a GP, operating in the UK lower-mid market, said. 

But according to EVCA’s secretary general, Dörte Höppner, it’s not necessarily a choice between the two. “I think there's room for both. Institutional investors care about ESG issues. Investors took time to consider ESG and are now convinced it is important and it can impact returns. While social finance is becoming more visible it's not going to be as large an asset class as private equity or venture capital. But there's definitely room for it and appetite for it,” she said.