11 October 2014
The Australian Financial Review
Copyright 2014. Fairfax Media Management Pty Limited.
A former Macquarie banker has spent the past decade bringing private sector rigour to the gentle, consensual world of charity, writes Sally Patten.
Michael Traill, Macquarie banker-turned-social entrepreneur, has elected to have lunch at The Apprentice, a student restaurant run by Sydney TAFE.
It is a fitting choice, given Traill's interest in education and support of efforts to prepare today's youth, particularly the disadvantaged, for life in the big wide world. He has never been to the restaurant, a stark affair tucked away on the seventh floor of one of the institution's central Sydney colleges, but says he has wanted to try it for a long time. I press him further.
"I thought it would be interesting to try on the basis that this place is training young people. It's quite a philosophical connection with what we do."
My guest is about to stand down as chief executive of Social Ventures Australia, an organisation that uses business principles to improve success rates in the not-for-profit sector, primarily in the areas of education and employment.
Traill, 54, who had spent more than a decade wheeling and dealing at the millionaires' factory, was the ideal candidate to bring some business rigour to the tree-hugging vegan brigade. Clad in a neat, dark suit complemented by a clean shave and thin-framed spectacles, Traill is still every bit the banker.
I wonder out loud what it was like in the early days.
SVA got off to a slowish start. The organisations Traill and co were courting had the attitude: "We don't care what you know until we know that you care." While 70 per cent of the skills the ex-banker had acquired could be applied to the charity sector, he quickly realised he needed patience and the art of listening and building trust to get him the rest of the way.
"There was a bit of a sense that you were from a different world," he recalls.Tables turned
Still, Traill found that doors were generally open – which he concedes probably would not have been the case if it was the charity guy calling on the banker.
Eventually charities outside SVA's "client base" were knocking on the door asking for help.
A team, set up in 2011 and led by another former Macquarie banker, Ian Learmonth, advises on funding structures. It underwrote Australia's first "social impact" bond, which raised $7 million in June 2013 and was earmarked to help prevent child abuse and neglect. The rainmakers came into their own. Investors were told to expect returns of between 10 per cent and 12 per cent.
Our waiter, Brendon, who is a few weeks away from completing a six-month food and beverage course, comes to take our order from the set menu. There are two choices of entree and main course and we order the same: spiced salmon ceviche and a fillet of snapper on "Paris mash" and green beans. We decide to wash it down with fizzy water. Traill does not strike as the two-bottles-of-red-wine-followed-by-a-port-at-lunch type.
The entrees arrive and we tuck in. The concept is all well and good, I think to myself, but can you actually measure results in the not-for-profit sector? How can you put a figure on the outcomes of an organisation funding palliative care?
Traill accepts the judging is more straightforward in the business world, thanks to concepts such as profit margins and return on shareholder funds. Nevertheless, he says the principle can be applied to the not-for-profit sector – for example by measuring student retention, employment or alcohol addiction rates – although the outcomes may take much longer to measure.
"What's required in a lot of this is a game of patience," says Traill, noting that education programs in countries such as Finland, Singapore and Canada have 10-year testing periods.
Australian governments, argues Traill, are as guilty as charities in their failure to set targets. As a result: "We have had a 45 per cent increase in real spending in education since 2000 in Australia and in that period, at best, our performance results measured by the OECD data have gone sideways. If you are not prepared to be specific about the outcomes you want, you are destined not to have anything to measure and much more likely to not spend money effectively."Testing, testing
That said, there is no database to prove the point. Measuring the success models in the not-for-profit sector is still a work in progress, even in the US.
Another frustration of Traill's is the lack of a unified purpose in many charities. SVA calls it the microphone test.
"If I stick a microphone in front of the chief executive of a non-profit, a board member and a major funder and I say: 'Can you, in two sentences, define what you would call success for your organisation after one year and after five years,' they invariably will give different answers. You very rarely get that in the business world."
Traill would also like to see consolidation in the charity business.
"I think one of the hoary old chestnuts in the sector is the opportunity for mergers and acquisitions. It is well documented in a lot of the cancer areas that if you are able to combine and generate some cost efficiencies in terms of administration savings and co-ordinated strategies, you might be able to improve both outcomes and efficiencies."
Traill, perhaps unsurprisingly, would like more philanthropists to consider outcomes-based approaches when they are dishing out their hard-earned cash to the charity sector. Less "spray and pray" and more discipline in checking how their donations are actually being spent.
"People made money and generated wealth because they were smart and disciplined and strategic in how they invested that. So why not apply the same things when it comes to the act of actually giving it away?" says Traill, without, he adds, wishing to be overly prescriptive about what people do with their money.
Our entrée plates have been cleared and the main course arrives. The fish is well cooked. We agree the food is "solid".Opportunities lost
Traill grew up in Morwell, in Victoria's coal-producing Latrobe Valley. He attended the local state schools and from a young age developed an appreciation for community and the opportunities education can provide. His father was a teacher and then a principal in the state education system. The young Traill saw firsthand that the kids who had no reinforcement at home of the importance of education, who had low expectations of what they could achieve, didn't have the same opportunities later in life.
Traill went to Melbourne University and Trinity College, with fellow rainmaker Mark Carnegie. The two are still friends. Traill sits on the board of M. H. Carnegie & Co in addition to chairing the Opera Australia Capital Fund.
In July 1987 Traill began working at Macquarie. His starting salary of $90,000 is a gobsmacking insight into the riches on offer at Australia's biggest investment bank. The salary was, he says, $15,000 or $20,000 more than his father, a principal of a "pretty tough 600-student school", was earning at the time.
But Traill insists he is not motivated by money and never equated big salaries with capability or worth. "I always thought my Dad was a good guy and a good leader and was doing good work, so it never struck me that [money] was a measure of good work."
He puts joining Macquarie down to a "bit of luck and serendipity". Within a short space of time he found his way to the direct investing team and loved the challenge of finding sound companies to invest in.
Given the amount of money sloshing around at the bank, Traill was in pole position to observe "the darker side of human nature". But, he says, that darker side is not restricted to investment banking. "I've had this transformation where I've worked on the dark side with the millionaires' factory and I've had the goody two-shoes hair shirt brigade, but the truth is that there are a lot of good, high integrity, highly ethical people who work at Macquarie. And on the social purpose side, there are a lot of really well- intentioned people, and there is quite a lot of ego and competition."
At which point Brendon comes to take away our plates and offer tea or coffee. We order one of each.Team talents
Asked what was his biggest achievement at SVA, Traill notes that the 2009, $165 million deal to acquire ABC Learning Centres after Australia's largest single childcare provider collapsed with more than $1 billion of debts, was an attention grabber. It also highlighted the opportunity the organisation had to broaden its funding sources.
But Traill is most proud of putting together a highly talented team, "a home for people who can use their skills in ways that hopefully have the capacity to make a difference".
He is, as an aside, a big supporter of the Charities and Not-for-profits Commission, which the government is planning to abolish. "The idea of having a central agency to support the not-for-profit sector makes a lot of sense," he says.
Traill, who has a wife and three children, aged between 18 and 23, says there is still work to be done on the social enterprise front, and although he will be leaving SVA as a full-time employee, he will continue, in between spending more time at the family beach house on the NSW south coast and reading more political biographies, to work on individual projects.
One of his current passions is to expand the sphere of funding sources for community projects in areas such as education and health to the $1.9 trillion superannuation industry. The dealmaker is confident that with more examples of the attractive, infrastructure-style returns on offer, the asset class will grow enormously. Indeed Traill is predicting the "impact investing" market could eventually be worth more than $35 billion in Australia.
"When I was involved as the co-founder of Macquarie's original private equity business in the late 1980s, very few of the super funds wanted anything to do with private equity. Ten years later they were losing their jobs if they didn't have an asset allocation to private equity. They are waiting for the market to prove itself and I have a very strong sense that the same opportunity exists in impact investing."
the apprentice Level 7, Building E, Ultimo TAFE, 695-731 Harris St, Ultimo, NSW 2 Set menu, $72 4 Sparkling water, $12 Total: $84