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BD Giving Notes – #23 ‘A piece of cake?’

By assuming that Risk, Return, Impact and Liquidity are all equal to the party, they each take a ¼  of the cake. But we concluded that each guest was not entitled to the same share of the cake.

Last week we passed yet another milestone for Barking & Dagenham’s Community Endowment Fund. 

The Community Steering Group met last Thursday to discuss the six investment proposals remaining after the first round of decision-making by our Investment Group. The Investment Group includes 2 Trustees, 2 Community Steering Group members, 1 investment expert, Géraud and myself. We wanted feedback from everyone in the CSG before we moved on to the next phase.

We wanted to know if anyone had any concerns about the proposals, or if they were happy to continue.

Cameron Bray and Lara Norris (from our partner, Curiosity Society), facilitated and held the space for the Community Steering Group to deliberate. Overall, the group were pleased with the way that the information had been reported and presented, and as such we will be bringing all six proposals to the Board of Trustees to make a final decision over what happens with the 90% tranche of the Endowment Fund – low-to-medium, indirect social investments. The 10% tranche will be purely dedicated to local investments in Barking & Dagenham, with decision-making happening in the new year.

What have we learnt so far?

Now I’ve given you an update about what’s been going on, I want to talk to you about what we’ve learnt, to zoom out, and really harness it. Akin to a fancy Nikon d3000 camera, we want to focus and capture a high-definition photograph of the process before we lose the moment. 

We aim to pioneer community-led investment and potentially curate what that process might look like in the U.K. We believe these Notes allow us to stand back for a minute, take the moment, and reflect on what has happened so far. 

We use a quadrilateral diagram to measure the viability of each investment proposal: 

  • Impact
  • Return 
  • Risk
  • Liquidity

The diagram has helped us all to think about each investment proposition. It has offered BD Giving staff, the Community Steering Group, and Trustees, a functional motif to see how attractive the investment really is.

However, while using it we have learnt:

  • We cannot treat risk, return, liquidity and impact as equals. 
  • There are other facets that we need to consider when making an investment decision. 

Let’s unpack these further.

We cannot treat Risk, Return, Liquidity and Impact as equals.

Each segment of our quadrilateral is scored out of 4. We quantified the attractiveness of each proposal by producing a score for each risk, return, liquidity and impact. This gave us a total score. The higher the score, the better the investment, right? Easy. 

Wrong.

Feedback from our Investment Group stated – “What about the importance of each segment, is Impact the same as Liquidity? Are they all equal players?”. The answer to that, was no. Our Investment Policy uses a total-impact approach whereby impact is just as important as a return. 

I sat back and pondered on this for a while. I questioned how we make the scores fair. We decided to stick with the scores but adapted the weighting of each segment, or slice if you like. 

I like to visualise this as 4 people attending a birthday party and deciding how much cake they get. 

By assuming that Risk, Return, Impact and Liquidity are all equal to the party, they each take a ¼  of the cake. But we concluded that each guest was not entitled to the same share of the cake. Impact and return, which are the headliners of the party (perhaps twins celebrating their birthday?), can take a larger share – 35% each. Risk takes a 20% share of the cake and liquidity, 10%.

We believe this gave an accurate representation of each investment proposal, correctly informing decisions made by any parties involved.

There are other facets that we need to consider when making an investment decision.

But we soon realised there was more to measure, to gain a better picture of how attractive the investment is. 

  • Learning Potential 

What opportunities the investment would give us, and whether the deal would allow us to learn more, especially with the investee themselves? If the investment is riskier, would the fact we would learn more balance that out? 

  • Investee relations 

The burgeoning relationship that we have formed with Fund managers for potential investments. The communications we’ve had, the meetings, and what impact this had on us. Do we like working with them? How can we see the relationship grow? Are they really interested in what we’re trying to achieve?

We are constantly learning, and capturing that is invaluable. Learning from the investment opportunity has the potential to hold as much value as the investment itself. How we harness that learning is going to be salient. 

While we have faced pushback and had some tough conversations, we’re dedicated to pursuing our goal of being the first in the U.K. to pioneer community-led investment (that we know of!). 

What we realised is it’s not just about investors allowing us to invest in their Fund, it’s about us liking them, believing in their values and what they strive for. Conversely, it’s also about them believing in what we are trying to achieve, believing that the community can be at the heart of something which has traditionally been led by financial institutions. We want to challenge and disrupt the status quo of the broken financial system.  

We don’t want a transactional relationship that just involves a simple handover of monies. We envisage dynamic relationships with the shared goal of putting community-led investment on the global stage.

And no, this is not going to be a piece of cake. But, we’re ready.

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