Pearce Stewart – Innovative Financial Initiatives

Innovative Finance Conference

12th November 2015, Cardiff City Stadium

Presentation will cover:- Who FIU is and our role Successes so far Pension Fund investments Charitable Bond model Critical success factors Questions

Established in 2011 to strengthen capacity for innovation.

Find new ways of funding and new sources of finance in times of austerity

making best use of Financial Transaction consequentials from UKG (over £600m)

High leverage shift away from grant funding to loans, equity, guarantees

30,000 affordable

homes’ target

28,048 completed

homes

£1.7 billion investment £1.7 billion investment

£1 billion of economic

activity each year

8,000 jobs supported each year

Social rent

Mid-market

rent

Low-cost home

ownership

Affordable Housing Supply Programme (AHSP)

First – Guarantee-based scheme for housing in the UK

First – Charitable Bond investments by a UK government

4,000 new affordable homes

through innovation

Unlocking up to half a billion pounds of housing

investment

Falkirk Local Government Pension Scheme (LGPS) fund investment in affordable housing

1 of 11 LGPS funds in Scotland £1.8 Billion fund assets

Trustees keen to support local investments that provide suitable returns

Scottish Ministers cannot direct LGPS funds investments

SG role was to enable delivery

Falkirk LGPS fund investment – timeline and key milestones

Falkirk LGPS fund investment – how it works

Falkirk LGPS fund agree plans for £30m investment - Over 300 new affordable homes to be delivered across Scotland – announced 08 June 2015

initiative will “act as a trailblazer and encourage other Scottish local authority pension fund trustees to take the plunge and invest in housing” – Alex Neil, Cabinet Secretary, Scottish Government

“Pension funds are becoming more and more interested in making 'impact' investments which affect local infrastructure, and housing is obviously part of their thinking.” – Chris Down, Chief Executive Hearthstone

SG investment of £10m rising to £37m by 2016

Charitable Bonds - Ethical financial engineering

Providing 600 affordable homes

Generating grant of £1.4m for community projects & up

to £8m for social housing £37m repaid in full by 2026

£10m SG loan invested with Allia. Allia on-lent £8.6m to Places for People to build affordable housing Interest foregone on SG investment generated £1.4m of grant for regeneration charities

£1.4m routed through the People & Communities Fund to 14 charities to tackle poverty in local communities Over 7,600 people helped –employment skills; activities for children and young people; money advice; improved community facilities

2014 – the first bond investment

Charitable Bonds - Ethical financial engineering

developing the model

Extending the bond term from 5 to 10 years, generating an increased charitable donation Using the charitable donation for the provision of social housing Procured a delivery partner – raising the profile of charitable bonds, growing the market, increasing transparency Opening up the loan finance to any RSL – providing attractive funding for affordable homes in Scotland

Charitable Bonds - Ethical financial engineering

£2m in 2014-2015 £25m in 2015-2016

Charitable Bonds – how it works

Iceberg Illusion – critical success factors

Aligning priorities across public and private sector

Understanding and reducing barriers where possible

Adaptive leadership Accepting the need to do things differently

Committed partners who are willing to collaborate

Thanks!

Any questions?

Pearce.Stewart@gov.scot