Blended Funds Bid to Tackle UK Social Shortfalls
Social impact investors recommend national and local community growth funds to tap £50 billion of private investments across the next decade.
New fund structures that bring together public money and private capital are increasingly being seen as the best way to leverage institutional investor appetite for social impact.
Big Society Capital (BSC) and 35 other organisations recently called for the next UK government to create two new funds that combine public and private finance to be directed into socially positive investments, including those aimed at alleviating poverty.
The proposed funds are a national growth fund and a local community growth fund. The former would seek to attract pension capital and other institutional investment into critical sectors for the UK’s prosperity and well-being. The latter would utilise a blended finance approach, using current government spending to attract private investment into growth opportunities identified in communities across the UK.
“Among institutional investors there is significant and growing appetite to invest in positive social impact. They want to invest in things that are going to make a real meaningful difference, as well as provide secure long-term returns,” James Westhead, Head of Engagement at BSC, told ESG Investor.
“There aren’t currently enough opportunities to do that, but we feel that creating these funds – which have government backing and involvement but are aimed at investments which have secure long-term income streams – can provide that.”
In a letter published in the Financial Times, the organisations outlined urgent actions to provide more ways for private investors to use their capital for the national good alongside taxpayer revenues.
“We need more ways for private investors to deploy capital alongside government funds,” the letter read. “We therefore support the launch of a national growth fund to attract institutional investment into critical sectors and places for the UK’s future prosperity.
“In tandem, we propose the creation of a local community growth fund to attract private investment into opportunities identified by communities across the UK,” it added.
According to social impact investor BSC, the measures proposed – including the two funds – could mobilise up to £50 billion (US$63.1 billion) of new private investment across the first decade of a new government.
“What we’re trying to do here is develop more of a partnership between government, investors, and ultimately the communities which need that investment,” said Westhead.
“The national fund is something that has been talked about in lots of different guises. For example, the Labour Party has floated the idea of a national wealth fund, which would be focused on more large-scale infrastructure type investments, including energy and green initiatives,” he explained.
“We think that’s a sensible idea, but we feel we there is also a real opportunity to create a fund in parallel that could be linked to it that focuses on the smaller, more local investment needed by communities across the country.”
Founded in 2012, BSC’s goal is to increase the amount of money invested in tackling social issues and inequalities in the UK. the social impact investment market is currently worth approximately £8 billion. The letter’s co-signatories included the Big Issue, Impact Investing Institute, and Snowball Impact Investment.
Local focus, big impact
The London Pensions Fund Authority’s (LPFA) ‘Investing in the UK’ report recently underlined UK place-based housing investments as a key priority. Around 64% of the local government pension scheme’s (LGPS) real estate and infrastructure investments are in the UK, totalling approximately £1 billion.
“We are very intrigued in how the agenda around place-based investing is developing a lot of momentum and interest,” said BSC’s Westhead. “We’re seeing it particularly strongly with investors like LGPSs.”
LPFA’s continued place-based UK housing investment bucks a trend noted in a recent report from the UK Sustainable Investment and Finance Association (UKSIF). UKSIF warned that the nation’s housing sector was at risk of losing out on £31 billion in private investment, partly due to some foreign markets being perceived as more supportive of their sustainability goals.
UKSIF polled 100 business decision-makers across the UK housing sector, representing £300 billion in turnover, 63% of whom said they either had or were planning to move investments out of the UK to a different market. Only 15% of surveyed firms said the UK was currently the most attractive market for green and sustainable investments.
“Economic growth is not just about big initiatives at a national scale, it’s also about what’s happening on your doorstep, your street, and in your community,” said Westhead. “I think it’s really important to have both of those initiatives happening at the same time.”
While there is no shortage of private market funds offering investors the opportunity to maximise their social impact, some are “not of sufficient scale for large institutional investors”, he added. However, the required scale could be achieved via a combination of government support and co-investment.
“There has been a dialogue and there is engagement around these ideas”, said Westhead. “For the particular ideas outlined in the letter, we’re at the early stages but there is definitely interest.”
The post Blended Funds Bid to Tackle UK Social Shortfalls appeared first on ESG Investor.