Sean, a professional money manager who blogs at Tactical Philanthropy, suggests that gifts and social investments might be combined into "derivatives" that would increase the depth and liquidity of philanthropic capital markets.
If social investing has a for profit component and the degree to which the returns are sub market rate is what makes up the “gift”, might we see the use of derivatives in the future that would allow for splitting the transaction? A donor would make a small gift that was matched with a larger investment. The “donor” would receive no return and the “investor” would receive a market rate return. This might allow social investment opportunities to tap into the huge pool of market rate return investors by leveraging the gifts of donors.
At the simplest level, a nonprofit with a strong donor base can probably borrow money at a lower rate than a nonprofit with an unreliable donation flow. Or, a social venture capable of returning 3% annual equity growth, might attract venture capitalists wanting 15% if and only if the social venture could solicit and receive a big chunk of "zero return" gifts that would enable the social venture to grow at the required 15% hurdle rate. Sean, may have more sophisticated "derivatives" in mind, but the idea of using gifts from donor, Sam, to increase return for social investor, Mary, is intriguing. Might it be simpler for Sam to just bribe or subsidize Mary? Makes you ask, when all the parts stop moving, Who benefits? Sam, Mary, the social investment or society? To say who you think benefits and how would be a theory of social change, or a social value proposition. To write such a theory, as you sought out an investor, you might include economics, a little satire, a few anecdotes, a motivational story, and some voodoo. You might consult domain experts, and a Gypsy who could read palms. How money and narrative, art and science, goodwill and hokum, will combine in these new philanthropic capital markets is fascinating to me, as an English major turned financial person. I would only add, fraud will follow sophistication, and will compound along with rates of return. The more money that can be made in these markets, the more they will draw bunko artists. Someone ought to be thinking about how these "mixed motive" markets will be regulated.