Before environmental, social and governance (ESG) investing came along there was SRI: socially responsible investing. Whereas ESG tries to be many different things, SRI involves investing in local communities, charities, and social enterprises and achieving a direct, measurable impact. You should also, hopefully, make a profit.
Big Society Capital, a major player in this sector, estimates that the investable high-impact segment of the UK market will be around £10bn-£15bn by 2025. Perhaps the most prominent securities in this context are retail charity bonds, which are issued by leading charities and listed on the London Stock Exchange.
A blue-chip partner
However, funds are also getting in on the act. Big Society Capital is behind the biggest new fund structure to access the social-impact sector, the Schroder BSC Social Impact Trust, which is about to be listed. This is in effect a partnership between Big Society Capital and blue-chip fund manager Schroders.
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This proposed new listed fund is looking to raise £100m and is targeting a return of inflation plus 2% per annum, with a low correlation to traditional quoted markets. There will also be an income payout of around 1%-2% once the portfolio is fully invested. Around 40% of the fund will be invested in property-based schemes. Typical of this is a portfolio investment called Resonance Real Lettings Property Fund – a partnership between specialist Resonance, a social-impact investment group, and the homeless charity St Mungo’s. This vehicle acquires homes for St Mungo’s. As of March 2020, 903 tenants were housed in 259 properties. It has a 3% target yield.
Another 40% or so of the fund will consist of lending to charities. It comprises an interesting range of investments, including a £16m portfolio of retail charity bonds managed by Rathbones, as well as direct loans. Typical of the latter approach is an investment alongside another big player in this sector, Charity Bank.
The last segment of the portfolio (around 20%) is arguably the most ambitious: social outcomes contracts. These are innovative structures whereby investors only make a profit if there is a beneficial social outcome. A good example is a sub fund called the Social Outcomes Fund II, which has committed to support two Stronger Families outcomes contracts in Suffolk and Norfolk. The idea, says the trust, is “to keep families together by repairing relationships, improving communication and helping parents to better support their children. In Suffolk, the programme has supported 64 young people aged ten to 17 to live safely at homes with their families; while the Norfolk programme has supported 63 young people aged eight to 15”.
Set for steady growth
The new trust closes its order book on 16 December, with a listing due on 22 December. It’s available via all the main private stockbroking platforms. There’s no guarantee it will succeed, but it does already have a seed portfolio of £40m in place, along with near-term commitments for another £60m. Big Society Capital is also contributing funds and will end up with 25% of the capital, while clients of Schroders and Cazenove have already said they will acquire £17.5m or 17.5% of shares.
I think this is an excellent new, innovative vehicle and assuming the flotation is successful, it should grow steadily. There is real demand for these social impact outcomes and Big Society Capital and Schroders are blue-chip names within their respective worlds. More importantly in this volatile world, steady, diversified yearly returns of, say, 4%-5% per annum is exactly what many investors crave.
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