MaRS Centre for Impact Investing welcomes the Government of Canada’s support for impact investment and social finance
The MaRS Centre for Impact Investing welcomes the Government of Canada’s support for impact investment and social finance in Economic Action Plan 2015.
In particular, the Centre commends the Government’s commitment to permit charities to invest in limited partnerships (LPs). Canada’s National Advisory Board to the Social Impact Investment Taskforce, launched by the G8, called for this measure in its final report Mobilizing Private Capital for Public Good: Priorities for Canada.
This important measure will expand the ability of Canada’s foundations to deploy their capital for public good, allowing them to invest in a wider array of impact investment products. It will also support foundation efforts to diversify their investment portfolios.
“Allowing charities to invest in limited partnerships will remove an unnecessary roadblock to foundation impact investments, opening up more opportunities for foundations to align their investment strategies with their public benefit mandates, and ultimately unlocking more capital for ventures and initiatives that support Canadian communities.” – Tim Jackson, EVP Corporate and Community Development and Lead Executive of the MaRS Centre for Impact Investing
Background (from Canada’s National Advisory Board report):
“The potential for foundations to act as early leaders in Canada’s impact investment market is significant. Canadian foundations collectively manage about $45.5 billion (based on 2012 data). While they are required to direct 3.5 percent of their assets into grants each year (to meet their annual disbursement quota), the rest is generally invested with the sole aim of maximizing financial returns. Impact investing offers foundations the opportunity to align at least a portion of their investment portfolios with their charitable objectives.”
“Private foundations are prohibited from carrying on a business and other charities are discouraged from doing so. By reason of the legal definition of a partnership, a charity that invests in an LP is considered to be carrying on a business even if it plays no active role in the business, and even though investments are generally understood to provide passively earned income.
The barrier to investments in LPs is problematic from the standpoint of building Canada’s impact investment market, as impact investment funds are often structured as LPs. This structure has also been used as a vehicle for investing in SIBs.”
“Foundations as charitable investors are eager to broaden the scope of their investments for social impact. The opportunity to provide more capital for social purposes through asset aggregating structures such as Limited Partnerships would certainly expand the market for impact investing and also permit endowed charities to fulfill their fiduciary commitments to prudent and diversified investment strategies. We strongly encourage the federal government to reconsider the current limitation on charities that prevents them from investing as passive investors and not business owners in a widely offered and accepted investment asset class of Limited Partnerships.” – Hilary Pearson, Philanthropic Foundations Canada, Mobilizing Private Capital for Public Good: Priorities for Canada