We were pleased to welcome Social Finance Limited to speak at our Charities Breakfast briefing on Thursday 13 September 2012 which focused on the emerging social finance market.
Social Finance was set up in 2007 to provide advisory services to help build a social investment market in the UK and has been at the heart of the this marketplace for many years, not only advising the Government, investors and intermediaries and developing the thinking in this area but also designing new investment models such as social impact bonds which have garnered a great deal of press and political attention.
Three of the organisation's directors: Annika Tverin, Kate Liebson and Martin Rich, led the discussion and outlined some of their new social investment products to explain how they are working to expand the social finance market and to illustrate some of the challenges and opportunities of this market.
Kate Liebson opened the discussion by reminding us that social finance is neither philanthropy nor grant giving, and not necessarily ethical or charitable, but a third source of financial investment for the third sector. It was pointed out that for charities, such investment could provide a way for charities to invest their endowments or act either as a source of funding.
Social Impact Venture Trust
As explained by Annika Tverin, Social Finance is putting together an innovative new form of Venture Capital Trust (VCT): the Social Impact VCT. In brief, this will be a specialist eight year planned exit VCT with a fund size of £20 million. Some of the benefits of the Social Impact VCT are that VCTs are already a widely recognised investment tool, there are various tax incentives for investors and the minimum subscription is £2,000 only.
The Social Finance team explained that only those companies with a track record of delivering social impact and positive financial results are chosen for the VCT. Interestingly, it was explained that the perceived social impact was given more emphasis than legal form when choosing such companies.
In response to a question from an investment manager about how the Social Impact VCT would monitor the morale integrity of the companies invested in, the Social Finance team explained that only those organisations that have the aim of creating a positive social impact integrated into their core business plan would be chosen and that Social Finance would then conduct reports into whether such organisations were meeting this aim and the organisation would also report back to the individual investors.
Essex Children's Social Impact Bond
Many have heard about the Ministry of Justice's payment by results projects in the Criminal Justice Sector and Kate Liebson outlined how Social Finance is developing a similar scheme in relation to education. The Essex Children's Social Impact Bond (SIB) is an initiative between Social Finance and Essex County County which aims to improve outcomes for children and young people at the edge of care. Social Finance will contract a children's charity to deliver this project and Social Finance (and therefore the investor in the Essex Children's SIB) will receive a proportion of the cost savings to the government of reducing the amount of days children spend in care. The fund will have an eight year maturity and the target returns are 8-12% pa.
There was a general discussion about how charities, in particular children's charities, could invest in this SIB and it would not matter whether they made a financial return as the investment itself was a legitimate charitable activity. Other sectors which are being considered by Social Finance for new Social Impact Bonds are criminal justice, chaotic families, health and drug rehabilitation.
Global Social Impact Fund
The Global Social Impact Fund (GSIF) is a fund of funds which provides investors with access to high social impact, high growth 'frontier' markets in healthcare, sustainable agriculture and community clean energy, as well as financial services and micro, small and medium sized enterprises. Martin Rich explained that the fund is designed to suit the existing market and its aim is to create a gateway for investors to enter the social impact world and therefore encourage the development of this market area as an asset class in its own right.
Social Finance is increasingly gaining credence, not only as a concept but also as a viable option for investors. However, this market is still inhibited by a lack of know-how and access and therefore stands in stark contrast to the mainstream market which is saturated with intermediaries, advisors and middlemen; it will be interesting to monitor the success of new products such as those outlined by Social Finance in breaking down these barriers.
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