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England social investment survey finds £165m dominated by social lending
What's been lacking, until now, is a comprehensive survey of the social investment market that goes beyond case study and anecdote to provide real data on the different players, their finances and their business models.
The social investment market in England remains small and dominated by a few large players, a new survey reveals today.
But growth ambitions are high, with 75% of social investment and finance intermediaries (SIFIs) saying they plan to expand their investment activities over the next three years.
Lighting the touchpaper is a new report published by The Boston Consulting Group and The Young Foundation on the social investment market in England. It describes a market which saw £165m of investment in 2010 dominated by secured lending from four social banks.
The report says this is a long way from the popular vision of social investors taking risks to stimulate growth and innovation in social enterprises. In fact, the report reveals that only 5% of the investments made last year were categorised as equity or quasi-equity.
However, growth expectations in the market are high – with 75% of SIFIs saying they plan to expand over the next three years, with an average expected growth in funds under management of 35% per annum. The authors estimate this to be equivalent to an additional £650m capital requirement across the sector.
Lighting the touchpaper is based on research commissioned by Big Society Capital and represents the first comprehensive, quantitative survey of the emerging social investment market.
It backs up findings in the 2011 RBS SE100 Data Report, which focused on the UK’s highest growth social businesses. Some 118 enterprises in the RBS SE100 raised a total of £145m investment, including £23.9m in loans and £3.2m in equity investment. The average loan was £568,000 and the average grant was £283,000.
Commenting on today’s report, Nick O'Donohoe, CEO of Big Society Capital, said: ‘What's been lacking, until now, is a comprehensive survey of the social investment market that goes beyond case study and anecdote to provide real data on the different players, their finances and their business models. That is why I believe this report is so important. For the first time we can put numbers on many of the hunches, observations and beliefs that have been debated in the sector for some time.’
The authors identify six actions that together can unlock the full growth potential of the sector:
- Create more 'investible' business models
- Improve financial skills and experience in the social sector
- Develop a better understanding of risk and how to price it
- Improve commissioning capabilities
- Improve metrics and independent audit
- Address the distortive effects of grants and 'soft' finance.
‘Throughout our research we were struck by the energy and optimism in the sector driven by a passion to create positive social change. It is this passion which needs to be channeled into achieving rapid growth over the coming years by creating high-quality investment opportunities, attracting more diverse sources of capital, and addressing some of the structural challenges in the market,’ says co-author Adrian Brown of The Boston Consulting Group.
Will Norman, Director of Research at The Young Foundation, who co-authored the report, commented: ‘There is great potential for social investment in England to bring in fresh sources of financial capital and provide new funding for civil society. However, this report highlights the need to build a better understanding of the necessary conditions for social investment to flourish. For example, it will be important that investors have confidence in their investees, which may well require an enhancement of current skills.’