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Introduction to Social Capital Market

Social capital

• Interactive social capital • Transactive social capital


- The intangible glue that - financial transactions to
holds a society and its promote positive social
various communities change
together (ex., charity, investment)
(ex., 공동체의식, 질서, 규
범, 도덕 등, 푸트남‘s 개념)

Integrated Social Capital Market


Less-established social capital market
Capturing the
Uncoordinate Marketplace
Value of the Maturity
d Innovation Building
Marketplace
 Disparate entrepreneuria  Centers of activity b  Growth occurs as  Activities reach a re
l activities spring up in re egin to develop mainstream players latively steady state
sponse to market Opportunities
need o  Infrastructure is buil enter a functioning and growth rates sl
r policy•incentives
Growing interest amongt that reduces trans market ow
 Disruptive innovators
capital ma
providers action costs and su  Entities are able to  Some consolidation
y pursue Challenges
leverage the fixed costs may occur
• new business
Greater recognition pports
of the a higher volu
models in seemingly mat me of activity• Lack of efficient
of theirintermediation
previous
need for effective solutions to
ure industries • Lack of enabling infrastructure
investments in
social and environmental
 Characterized by lack of • Lack of sufficient
infrastructure across
absorptive
challenges
competition except at top higher volumes
capacity for capital,
• A steadily developing track
end of market  Organizations may

record with early successes become more


• A flock of talent specialized

Social capital Social


market capital mkt
today in 5-10 years?
Mainstream Financial Market

• Money Market(화폐시장)
– Short-term debt securities

• Capital Market(자본시장) well established


– Bond market
– Stock market
– 목적: price discovery, liquidity, reduce transaction costs
Mainstream Financial Market

Direct Financing
Fund Fund

Financial Markets

Demand for Fund Securities Securities Supply of Fund

Fund Fund
Government Financial Investors
Corporation Intermediary (개읶, 기관)
Return Return
Indirect Financing
Social Capital Market

Professional
Service Provider

Fund Fund
Demand for Fund Social Supply of Fund
Capital Market
Vehicle Vehicle
Social Direct Financing Investors
Enterprise (개읶, 기관)

Financial
Intermediary

Indirect Financing
Social Capital Environment
Social Capital Market

Professional
Service Provider

Fund Fund
Demand for Fund Social Supply of Fund
Capital Market
Vehicle Vehicle
Social Direct Financing Investors
Enterprise (개읶, 기관)

Financial
Intermediary

Indirect Financing
Social Capital Environment
Social Capital Market

Professional
Service Provider

Fund Fund
Demand for Fund Social Supply of Fund
Capital Market
Vehicle Vehicle
Social Direct Financing Investors
Enterprise (개읶, 기관)

Financial
Intermediary

Indirect Financing
Social Capital Environment
Segments of Impact Investors
High

Impact Floor
Solely Financial First Investor
Profit-Maximizing
Investing Optimize financial returns
with an impact floor

Impact First
Investors
Financial Optimize social
Return or environment
returns with a
“Yin-Yang” Deals financial floor

Financial Floor

None Philanthropy

None Impact High


Social Capital Market

Professional
Service Provider

Fund Fund
Demand for Fund Social Supply of Fund
Capital Market
Vehicle Vehicle
Social Direct Financing Investors
Enterprise (개읶, 기관)

Financial
Intermediary

Indirect Financing
Social Capital Environment
Exchange Intermediaries
1 3

2 1
Exchange
3 2
Intermediaries

Brokers
Market-makers
1 Exchange owners and
3
others
3 1

2 2

Investors Investees
Exchange Intermediaries
 Lowering searching cost of investors
 Back-office functions
Handling Investment reporting and settlement
 (ex) social stock market
- 사회적 증권거래소(Social Stock Exchange)란 기업의 사회적 책임
(CSR; Corporate Social Responsibility)을 다하는 기업들, 재무적 수익
과 사회적 미션을 동시에 수행하는 사회적기업(social enterprise)의
주식을 거래소에 상장시킨 후, 윤리적 투자자들로부터 자금을 공급받
는 주식시장
- 사회적 증권거래소의 시초는 2003년 브라질 증권거래소(Bovespa)
가 온라읶상으로 처음 개설한 사회ㆍ환경 증권거래소(BVS&A)
Financial Intermediaries
1 3‘

2 1‘

3 2‘

A11

A22

A33
A
Investors Investees F. I.
Financial Intermediaries
 Syndication
- Financial Intermediaries들이 읷시적 조직을 형성하여 거액의 유가증권 읶수
- transforming financial assets that are less desirable for a large part of the
public into other financial assets – their own liabilities – which are more widely
preferred by the public. (by risk management, diversification)
 Investment placement & Diversification
- Private Banking (some private banking professionals‘ clients are demanding
social capital investments)
 (ex) 영국의 브릿지커뮤니티벤처(Bridges Community Ventures)
- privately-owned venture capital company with a social mission. All the funds
we raise aim to achieve a social purpose as well as financial returns to investors
- 금젂적 배당(financial returns) 뿐만 아니라 사회적 배당(social returns)을 하는 셈
- 버려짂 기름을 재생하는 지역기업(Whelan Refining Limited), 버려짂 타이어를 수
집하여 가공하는 기업(CE Holdings), 저소득층을 위한 저렴한 건강헬스클럽(The
Gym), 창업단계의 소기업에게 사무공간 제공하는 사업(The Office) 등에 투자
Information and Professional service providers

 Roles
• Lower the costs of due diligence and, in turn, transactions
• Help donors navigate the charitable universe in response to concerns
about nonprofit accountability and the scarcity of information
• Rating agensies for social capital investees; professional service firms;
‗watchdog‘ organization
 Difficulties
• Less profit comparing to mainstream capital markets → labor shortages
and difficulty in recruiting the best talent

 (ex) 서스틴베스트
―서스틴베스트는 기업의 ESG(환경,사회,지배구조) 정보 / 분석 / 젂략에 대한 젂
문성을 바탕으로 기업의 비재무적 위험(Risk)을 발견하고, 새로운 성장의 기회
(Opportunity)를 발굴하기 위한 젂략적 의사결정을 돕는 씽크탱크입니다.‖
=> 사회책임투자에 필요한 정보 제공
Social Capital Market

Professional
Service Provider

Fund Fund
Demand for Fund Social Supply of Fund
Capital Market
Vehicle Vehicle
Social Direct Financing Investors
Enterprise (개읶, 기관)

Financial
Intermediary

Indirect Financing
Social Capital Environment
Investment Vehicle

• Investment vehicle is a way of Investing money


from investor to investee

• Notes(어음), bonds, convertible securities,


common stock, preferred stock, warrant etc.
To do list
• Characterizing investment vehicle

• Structuring investment in microfinance and


community economic development

• Forces driving investment vehicle innovation

• Gaps in available investment vehicle

• Future innovation in investment vehicle


Characterizing Investment Vehicle

• 다양한 Investment vehicle을 특정한 기준에 따


라서 분류하는 작업

• 기준(예) : financial return, financial risk, involvement

• 이런 characterizing 작업을 통해서 investment


vehicle을 mapping함
Investment Vehicle Map
HIGH INVOLVEMENT

Venture Venture
philanthropy capital

CHARITABLE COMMERCIAL

Traditional Bank
grant making lending

LOW ENGAGEMENT
Structuring investment in MF & CED

• Microfinance
• Community Economic Development
(지역사회경제개발) ―... problems facing communities—
unemployment, poverty, job loss, environmental degradation and
loss of community control—need to be addressed in a holistic
and participatory way.‖

• Using practice established in mainstream structured finance


intermediaries have created a variety of investment instruments that
appeal to a range of investors.
• Such innovation not only increase the capital available to enterprise,
they can also help investees adjust their businesses and capital
structure in order to improve their own performance.
Forces driving
investment vehicle innovation
• Investees
– As investees become more sophisticated about their own capital
structures, they will increasingly drive innovation in investment
structuring.

• Investors
– Social capital investors must also identify their own goals and
expectations. They need to approach investment and capital
structuring with creativity and a sense of what returns on investment
are realistic.
– Investors can advance financial and extra financial goals by building
portfolio of different types of social capital markets investments and
by pursuing different investment strategies.
Gaps in available investment vehicle

Venture philanthropists

Patient capital invetor


Future innovation in investment vehicle

• Financial engineering alone cannot fill gaps in the capital markets


 Investors and social enterprises both need to revise their
expectations of the investment relationship and focus on
productive engagement with one another

• When investors, investees, and intermediaries clarify their goals


and roles in relation to one another, then the appropriate
investment vehicles will arise with relative ease.

• Social capital markets participants can speed the advent of


appropriate investment structures and relationship through
transparency.
Professional
Service Provider

Fun Fun
Demand for Fund d Social d Supply of Fund
Capital Market
Vehicle Vehicle
Social Direct Investors
Enterprise Financing (개인, 기관)

Financial
Intermediary

Indirect Social Capital


Financing Environment
Performance Data

 Importance

Effective measurements can help enterprise managers understand which


endeavors represent the best use of their own capital and energy

 Reason of insufficient Performance data

There is lack of good measures to assess the extra-financial value


Q&A
References:
From Fragmentation to Function, SKOLL CENTRE
Investing for Social & Environmental Impact, MONITOR INSTITUTION
2009-1 WISH 세미나 자료