The first quantitative research study into social investment in the UK
These are exciting times for the social investment market. With the establishment of Big Society Capital and the development of new products such as social impact bonds the UK is leading the world.
This report is based on research commissioned by Big Society Capital on the social investment market in England. The objective of the research was to provide the first comprehensive survey of the emerging social investment industry. We identify five different actors in the social investment market:
-Social investors who are seeking both social and financial returns;
-Social investment and finance intermediaries (SIFIs) who attract money from social investors and use it to make direct investments in front-line social ventures;
-Front-line ventures such as charities, co-operatives and social enterprises who use the investment to directly finance their operations;
-Commissioners who are willing to pay for socially valuable services; and
-Service recipients who are ultimate beneficiaries of the services provided.
Our survey paints a picture of a social investment market which remains highly immature and dominated by a few large players. Total social investment in 2010/1 was £165m which is tiny when compared with other sources of finance available. The market is currently dominated by four social banks that were collectively responsible for around 70% of social investment activity last year. Because the banks are interested in lower risk, longer-term investments, over four-fifths of investment activity is currently secured lending.
This is a long way from the vision of social investors taking risks to stimulate growth and innovation in social enterprises. In fact, only 5% of the investments made last year were categorised as equity or quasi-equity.
Growth expectations in the market are high. 75% of respondents said they would expand current activities over the next three years. The average growth expected in funds under management over this period was 35% p.a. which is equivalent to an additional £650m capital requirement.
Our survey identified six actions that together can unlock the full growth potential of the sector.
1) Create more 'investible' business models
2) Improve financial skills and expertise in the social sector
3) Develop a better understanding of risk and how to price it
4) Improve commissioning capabilities
5) Improve metrics and independent audit
6) Address the distrotive effects of grands and 'soft' finance
We are confident the sector will rise to the challenge. Throughout this research we were struck by the energy and optimism in the sector as a whole driven by a passion to create positive social change. It is this passion that will be the real fuel for growth of the sector in the years ahead.