On 26th September, a Social Investment Forum organised by Sarasin & Partners, Big Society Capital and Cass Business School asked the question “Is social investment growing fast enough?” Hear the thoughts and experiences of our speakers.
Mark Salway from Cass Business School, gave an overview of recent research into why charities and not for profit organisations want this, key barriers and enablers, and the potential future size of the market.
The research, which included 130 interviews with charities, showed that many are turning to social investment to replace or supplement grant income (60% see social investment as a way to change their business models) but that they need help to explore these new business models. Charities see a profound shift in the next five years, and predict that £5bn will be needed. Could social investment see similar growth to the green market a few years ago?
Anna Shiel from Big Society Capital gave an overview of the social investment landscape (growth, key market opportunities and future trends)
From a historical perspective there is nothing new about social investment – the earliest example dates back to 1542 when the Sir Thomas White Loan Charity started giving interest-free loans to aspiring business people in Leicestershire and Rutland. Nowadays there isn't really one market- there is a range of social investment products, from social property funds through to risk capital for high growth ventures, as well as other products like bonds and community shares. Trusts and foundations are the pioneers in this space, and it's about much more than the money, with both investors and enterprises motivated by mission. The UK market is now worth £2bn, with an annual deal flow of £596m and over 3500 charities and social enterprises are using social investment to start, sustain or grow around 50 different social revenue models.
Peter Baxter from Trust for London gave a perspective as Trustee and chair of the investment committee, of the journey his Trustees made before deciding to make social investments, and why foundations and endowed charities have a powerful role to play in the space.
Trust for London initially committed 5% of its assets to social investment to further the aims of the charity. It is now doubling this to £25m and broadening its investment remit. They make social investments to further their mission, achieve broader social outcomes, use their whole portfolio to encourage behavioural change, source uncorrelated returns and diversify, and to leverage more capital e.g. by co-investing with funds.
They have learnt valuable lessons along the way, including: the importance of looking at a whole investment spectrum not just a carve-out; a lack of evidence makes it hard for trustees to embrace the concept; it is a collaborative space e.g. fund managers and the SIIG are open to sharing learning and information; the infrastructure is missing, so investors must DIY or outsource via funds like Bridges, Big Issue Invest and Social and Sustainable Capital (SASC) – mostly it is good to do both, using your whole portfolio. It is important not to be tied up on definition but to find your place and role and to add an impact lens.
Benjamin Rick from Social and Sustainable Capital (SASC) gave a social investment fund manager’s perspective on “Is faster better?”
SASC have made 16 investments so far, totalling £15m. This has been slower than they had hoped. Investing in organisations with a double bottom line is at least twice as hard as investing in a single bottom line. Is social investment growing fast enough? Traditional investment has gone for 500 years and still crashed in 2007, whilst impact investment only emerged in 2007. Should it go faster? From an investee perspective, it would mean more money going to inspiring organisations that generate impact, but loans made to projects that aren’t viable put them at risk of failure. From a market perspective, successful investments would attract more commercial capital to the sector – but a disproportionate number of failed transactions could undermine commercial interest in the sector. From an investor perspective, more funds under management would help progress social investors to sustainability – but if more money means new managers, it would create more small and unsustainable investment firms. Impact is achieved from doing something right, not doing it quickly.
David Holmes from Family Action explained how his organisation represents the shift in funding models and the journey of taking on social investment from SASC including why he has become a face of the GET INFORMED campaign.
The board of Family Action was open to the idea and wanted to diversify its income, seeing investment as an alternative to fundraising income. They have developed two payment by results services, one for 30 very high risk children in care with SASC, and now a service model with funding from Stepping Stones. Social Investment can be a route to bold innovation as well as an aspect of an active income diversification strategy. However, it is not a complete answer, particularly when the project idea is new, risky and not asset-backed, and it can be a challenge to deliver a financial return. More blended approaches are needed (combining grant and investment capital). It can be difficult to get local authorities to engage and overcome procurement/legal barriers. Faster growth requires these challenges to be acknowledged, debated and solved.
Charities with investments e.g. trusts, foundations, and operational charities can get involved in social investment in different ways depending on their mission, size and where in the ecosystem they feel they are best placed to play a role. Subscribe to the GET INFORMED campaign to receive information and support on how board members can engage with social investment.