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Big Society Capital to attract £3bn in social investment by 20151

Finance | Vibeka Mair | 4 Oct 2011

Big Society Capital will bring in £3bn in social investment by 2015, according to its chief executive Nick O'Donohoe.

O’Donohoe, who was speaking at the J.P. Morgan Charities Seminar 2011, said Big Society Capital (BSC) would insist on social impact and a multiplier effect from its investments, with other money coming in on all deals.

O’Donohoe said its plan to get £4 for every £1 it invests from its starting point of £600m in capital would bring £3bn to the sector by 2015.

During his speech yesterday, O'Donohoe said BSC was likely to invest in all imminent new social impact bond initiatives.

“We are seeing significant interest for this type of structure and there is a significant pipeline of social impact bonds,” said O’Donohoe, “and we are likely to be a cornerstone investor in most or all of these transactions over the next six to 12 months."

Developing intermediaries

O’Donohoe also laid out BSC’s objectives over the coming years.

It would seek to develop a strong social investment intermediary sector, he said, which was currently significantly underdeveloped.

“Ninety per cent of social investment funds are currently channelled through nine intermediaries,” he said. “There is a complete lack of a developed intermediary sector for social investment, while there are thousands of these organisations in the financial sector.”

BSC will invest in social investment intermediaries, who will then go on to invest into social enterprises and charities.

BSC would also, he said, seek to achieve some consistency with social impact, help develop multiple liquid social investment instruments and encourage investor participation in the social investment market.

Looking longer-term, he said BSC would look at issues such as the lack of capital for community assets and perhaps helping charities and social enterprises win public sector payment-by-results contracts.

Defining social enterprise

O’Donohoe also admitted that defining a social enterprise would be an issue for BSC:

“Is an enterprise in a deprived area giving jobs to the unemployed, but making a total financial return a social enterprise?” he asked. “It’s still an open issue.”

BSC which was officially launched this summer, expects to receive £600m of committed funds - £400m from dormant accounts and £200m from high-street banks, over four years.

However, the organisation is still awaiting EU and FSA approval. An investment committe within the Big Lottery Fund, which has received £30m in dormant accounts, is making investments to social intermediaries on its behalf in the meantime.

Its first investment of £1m is in a new social impact bond to be led by the Private Equity Foundation, who will use £500,000 of the money to leverage a further £1m into the bond. 

There are already a couple of high-profile social impact bond initiatives in place. Social Finance is co-ordinating a social impact bond trial aiming to cut re-offending amongst ex-offenders from a Peterborough prison. And this summer, the Office for Civil Society announced it would work with four local authorities to design tailored SIBs to fund help for ‘problem’ families.