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B14: Social investment – can we make it happen?
Speakers: Corrine Callaway
Chief Operating Officer Social Finance David Alcock
Senior Associate Anthony Collins Solicitors
Emma Duke
Associate Anthony Collins Solicitors Active Chair: Claire Norton
Independent Consultant Essential Consulting
Social Finance is authorised and regulated by the Financial Service Authority FSA No: 497568
SOCIAL INVESTMENT
Corrinne Callaway Consultant, Social Finance
©Social Finance 2012
SOCIAL FINANCE - WHAT WE DO 3
Financial Structuring
Capital Raising
Research &
Development
Key Social Issues
LONG TERM
SOCIAL GAIN
SOCIAL INVESTOR
MARKET GROWTH
SOCIAL SECTOR
DEVELOPMENT
Social Finance seeks to mobilise capital to drive social change
SOCIAL
ORGANISATIONS
• Children in Care
• Financial Inclusion
• Criminal Justice
• Employment
• Health Care
• Affordable Housing
• Excluded Youth
GOVERNMENT
• Central
government
• Local government
• Commissioners
• Ministries
• Policy Makers
INVESTORS
• Trusts & Foundations
• High Net Worth Individuals
• Private Banks
• Mass Affluent
• Institutional Investors
• Big Society Capital
©Social Finance 2012
4
SOCIAL
INVESTMENT
TODAY
©Social Finance 2012
SOCIAL INVESTMENT TODAY 5
Social Investment
Visible and ideally
measurable social
impact
Expect return of
principal plus some
financial return
Total income to charities
£55+ billion
UK Social Investment £150-
200m
Charitable Donations
£10 billion
Total UK social investment today is under £200m per annum and is mostly debt finance
©Social Finance 2012
INVESTOR INTEREST 6
Charitable Trusts and Foundations have been behind much social investment, but affluent retail investors could also drive demand
Source: NESTA/Fair Banking, Investing for the Good of Society
Sample of investors with over £100k investment assets
©Social Finance 2012
7
SOCIAL IMPACT
BONDS
NOT THE
ANSWER TO
EVERY-
THING
©Social Finance 2012
WHAT IS A SOCIAL IMPACT BOND? 8
Provider 1 Provider 2
11-16 year old cases referred to
Panel
Outcomes
Contract SIB Company
Investors
Local
Authority
SIB company contracts with Local Authority
Investors fund Company. Investors will include funds, wealthy individuals, trusts and foundations.
Funds released to service providers via Company.
Local Authority returns a % of savings from reduced cost of children placed in care
1
2
Ongoing operating funds 3
4
1
2
3
4
Outcomes Provision of interventions to target population
SOCIAL IMPACT BONDS CATALYSE NEW SERVICE DELIVERY MODELS AND TRANSFER
IMPLEMENTATION RISKS TO INVESTORS.
% of cost savings from
reduced placement & related costs
Finance for preventative services
c. £X million
©Social Finance 2012
SOCIAL IMPACT BOND: CRITICAL SUCCESS FACTORS
9
Criteria for a successful Social
Impact Bond
Key considerations
1. Pressing problem and gap in
current provision
A Social Impact Bond is intended to bring new funding to meet a gap in
services.
2. Promising interventions A Social Impact Bond works best for extending promising approaches,
not pure innovation / R&D or programmes with 100% success rate
3. Risk transfer, external expertise
and more flexible resources
A Social Impact Bond transfers risks of implementation failure away
from the public sector and can enable more flexible models of service
provision.
4. Supports and catalyses wider
service changes
A Social Impact Bond aims to continually improve delivery through
rigorous monitoring, evolving service provision and stimulating new
forms of collaboration.
5. Outcomes based contract
possible:
a. Robust outcome metrics with
clear attribution
A Social Impact Bond relies on a robust outcome metric which can be
easily measured. Ideally change is measured against a comparable
group.
b. Identifiable target population A target population must be identifiable and accessible.
c. Sufficient savings for investors
and commissioners
A Social Impact Bond involves significant risk for investors and new
ways of working for commissioners – each needs sufficient rewards.
6. Social impact high and attractive
to social investors
A Social Impact Bond will aim to attract investors who are as interested
in the social impact as well as a financial return.
©Social Finance 2012
SOCIAL INVESTMENT MYTHS 10
• Social impact bonds can solve the problem
• Socially motivated money is cheap
• Cost of due diligence
• Cost of capital
• Pension funds and institutional investors want to invest socially
• Cost of due diligence
• Cost of capital
• Cost of meeting regulatory requirements
©Social Finance 2012
SOCIAL INVESTMENT OPPORTUNITIES 11
• Social impact bonds work best for preventative service based projects and not those requiring long-term capital investment
• The change in government focus from output contracts to outcome contracts is increasing the need of organisations to find funding to cover the cost of operations between service delivery and measurement of outcome
• Social investment has many structures to bridge funding gap opportunities
• Equity investment
• Community share issues
• Quasi equity
• Traditional debt models
• The search is on for scalable and replicable models
Housing Care and Support conference
David Alcock and Emma Duke
Tuesday 3rd July 2012
Social investment – new legal
models
Who are they?
Anthony Collins Solicitors – based in Birmingham,
working all over England and Wales
Leaders in working in the “space” between the public,
private and third sectors and in social housing
Significant involvement in community investment and
in developing social impact funding models
Working with the Asset Transfer Unit on asset
transfer and associated issues
What is social investment?
“The social investment model seeks to co-align
financial and ethical interests in a single strategy. The
capital itself, rather than a ‘charity run-off’, is used to
further the mission-interests of the investor, and
produce a ‘blended return’ — i.e. one composed of
both financial and social or environmental benefits.
Together these elements compose a double or in
some cases triple bottom line.”
Adrian Hornsby, Investing for Good
What is social investment?
This kind of “blending” offers key advantages:
• Greater connection between investments and the
values and beliefs of the investor.
• Capital is invested not donated and therefore remains
in circulation, maximising impact through recycling
• Being vehicles for capital investment makes socially
motivated organisations engage with the need to
generate a surplus, making them more sustainable
• Conflicts between profit-maximising investments and
philanthropy are minimized.
Investment - Solution to funding gap?
Investment = investing of money or capital to gain profitable
returns
How do we define return?
Best value
Financial return
Continued service delivery
Independent and flourishing communities
Continued employment
… and profitable for whom?
Potential Investors/Collaborators
Who might be interested in sharing resources to promote
delivery?
Traditional investors
Grant funders
‘Customers’
Other charities with purposes to fulfil
Communities
Statutory bodies with legal obligations
You
Other stakeholders…..
New ways of thinking old things
Community share issues
Community bonds
Social impact bonds
Loans – with imagination!
Contracts and commissions
Bond Issue
New ways of thinking old things
Bankrolling payment by results funding
Levering private finance into public services
Investing ‘in kind’ rather than financially
Enabling community ownership
Repositioning your own contribution
The Challenges
Control
Identifying what collaboration is for
Building a business case
Localism v benefits of scale
Assessing other forms of return
Culture change
Social Impact Bonds
Government department
/ local authority/ other
public body which saves
money
Investors
Delivery Vehicle
Contract
Payment conditional
upon results
Invest pending results
DELIVERY PARTNERS
Contracts
Outcome = quantifiably saves public
body money
1. 2.
3.
4.
Social Impact Bonds – legal issues
Where does RP sit?
Investor
Central partnership body
Delivery
Legal structure and governance
Measuring outcomes – contract specification
Procurement – what and from whom?
Community share issues
• Attracting small scale investment from communities
• Different form of engagement
• Used in village pub buy-outs, organic farm purchase, community land trust funding…
www.communityshares.org.uk
Community share issues
• Legal structure issues - use of community benefit industrial and provident society
• Up to £20,000 investment for each individual
• For community projects
• Withdrawable share capital
• Exemption from FSA share offer requirements
Loans with imagination
Birmingham social enterprise bakery
Not for profit structure
7 year loan of capital
Interest paid weekly in bread
Community Bonds
project
project
project
Release
for use
Investor £x
agreed fixed
period
Invest
interest and capital
Repayment
Joint
Venture
General issues for RPs
Internal permissions
Charitable status
New guidance on “programme related investment”
Priorities in challenging times
Clarity around role and governance
Link to overall strategy
And to ponder…
Who do you bank with?
Do you know what your own investment strategy is?
Is it aligned with your core mission?
Housing Care and Support conference
David Alcock and Emma Duke
Tuesday 3rd July 2012
0121 212 7431
www.anthonycollins.com
Social investment – thanks for
listening!
