Overview of Eco-system

Report
Template for Mapping
Impact Investment Eco-systems:
The UK Eco-system
Social Impact Investment Task-force established by G8
Update for country representatives
Stephen Brien, 10th January 2014
Overview of impact investment Eco-system
Each financial transaction has its own ‘signature’ across the many parties
Supply of investment finance
Addressing social need
Procurement /
Commissioning
Government
Funded Service
Delivery
Government
procurement of
for-profit delivery
Government
procurement of
non-profit delivery
Foundation / Charity
procurement of
social value
Grant-making /
giving
Social need
Ageing
Disability
Non-profit
Delivery
Organisation
Charitable Service
Providers
Non-profit service
providers
Finance
Investors
Social
Investment
Wholesaler
Government
investment
Social Banks
Trusts and
Charitable
Foundations
Social Investment
Intermediaries
Local Funds
CDFIs
Traditional
Institutions
Fund Managers
Corporates
Quasi Equity
Tax Advantaged
funds
High Net Worth
Individuals
Equity
Crowdfunding
Platforms
Mass Retail
Secured Loans
Unsecured Loans
Education
Children and
Families
Criminal Justice
Employment
Healthy Living
Cooperative
Charity Bonds
Development Trust
Mutual /
Public Service Spinout
Social Impact Bonds
Leisure Trust
Housing
Trading activities of
social organisations
Channels
of capital
…..
Non-profit
(maximising) trading
companies
Delivery Regulation / Infrastructure / Support
Finance Regulation / Infrastructure
e.g. Essex Children in Care Social Impact Bond with Bridges and Social Finance
1
Overview of impact investment Eco-system
Each financial transaction has its own ‘signature’ across the many parties
Supply of investment finance
Addressing social need
Procurement /
Commissioning
Government
Funded Service
Delivery
Government
procurement of
for-profit delivery
Government
procurement of
non-profit delivery
Foundation / Charity
procurement of
social value
Grant-making /
giving
Social need
Ageing
Disability
Non-profit
Delivery
Organisation
Charitable Service
Providers
Non-profit service
providers
Finance
Government
investment
Social Banks
Trusts and
Charitable
Foundations
Social Investment
Intermediaries
Local Funds
CDFIs
Traditional
Institutions
Fund Managers
Corporates
Quasi Equity
Tax Advantaged
funds
High Net Worth
Individuals
Equity
Crowdfunding
Platforms
Mass Retail
Unsecured Loans
Education
Children and
Families
Criminal Justice
Employment
Healthy Living
Cooperative
Charity Bonds
Development Trust
Mutual /
Public Service Spinout
Social Impact Bonds
Leisure Trust
…..
Investors
Social Investment
Wholesaler
Secured Loans
Housing
Trading activities of
social organisations
Channels
of capital
Non-profit
(maximising) trading
companies
Delivery Regulation / Infrastructure / Support
Finance Regulation / Infrastructure
e.g. Real Lettings Property Fund with Resonance
2
Procurement / Commissioning
With £250bn of social service delivery funded by government, £150bn
could be accessible for impact investment . . .
UK Govt market for Social Impact (current and potential)
£200bn
Other
Government
Social Delivery
100
£180bn
£160bn
£140bn
‘Accessible’
Government
Delivery
89.0
Government delivery
£120bn
For-profit delivery
£100bn
Non-profit delivery
£80bn
£60bn
£40bn
Other charitable
service provision
£20bn
25
£0bn
4.5
2003 Non-profit Govt Contracting
Other charitable
service provision
30
13
2012 Non-profit Govt contracting
48
For Profit
48
13
13
2012 All Govt Social Contracting
Accessible Market of govt Social
Contracting
(Total Govt procurement
across all sectors £89bn)
(£150bn out of
Social Operational
expenditure of £250bn)
. . . Foundations and Charities could also increase impact procurement
Note 1: Sources NCVO cited in Barclays Charity Review 2012, The First Billion - BCG
Note 2: Social Enterprise annual turnover is £163bn – so assume non Value-sponsorship revenue is primarily trading (need to remove grant revenue)
3
Procurement / Commissioning
Health, Education and Communities dominate the accessible market
UK Government expenditure 2011-12
(£Bn)
100%
Total =
£693bn
50
Capital
investment
61
Other – non-social
(e.g. Defense)
47
Scotland, Wales, NI
(Devolved expenditure)
12
9
20
7
Home Office
Justice
298
“AME”
(e.g. welfare,
tax credit,
debt interest)
50%
Assumptions
Total =
£150bn
80%
60%
(Incl Scotland, Wales, N Ireland)
Total =
£346bn
90%
70%
Accessible market for UK Impact Investment
20% of Policing Opex
Home Office 1
Justice
4
Prisons & Probation Opex
Business
5
Further Education expenditure
Work & Pensions
5
Service Provision
(Not payment admin)
Business
Work & Pensions
32
Communities
Local Authority expenditure (£20bn
Neighbourhoods (£6bn)
Localism (£3bn)
40%
50
Education
Communities
29
30%
60% of State Schools &
academies
Learning & skills, Early
years, Sure start, Children &
Families expenditure
346
20%
10%
Education
Operational
Expenditure1
49
100
Health
Health
75% of General Hospitals
GP, community health, mental
illness, learning difficulties
57
0%
Total UK
Government
expenditure
UK Government
OpEx
0
10
20
30
40
50
60
(By Department)
Note 1: Resource DEL in Government Accounts
Sources Government Budget Tables for 2011/12 (April 2013) and Guardian Public Spending Chart for 2011/12
4
Procurement / Commissioning
Approach to defining accessible market – a set of broad assumptions
1.
Identify total Government Spending = £694bn in 2011/12
2.
Focus on spend that corresponds to operating expenditure (mostly salaries and procurement) = £346bn
3.
Select spend in departments with Social purpose (including Scotland, Wales, N. Ireland) = £285bn
4.
For each department, identify potential for impact = £150bn
–
–
–
–
–
–
–
Health: Mostly already categorised in govt accounts as a form of procurement (from Trusts)
75% of General Hospitals (salary and non-capital equipment/supplies) – care and support staff are major cost.
GP, community health, mental illness, learning difficulties
Education: Given some schools are already run by charities, no technical barrier to vast majority being commissioned
60% of Schools & academies
Learning & skills
Early years, Sure start, Children & Families
Communities: Much of its services are about social impact
Local Authority expenditure (£20bn)
Neighbourhoods (£6bn)
Localism (£3bn)
Department of Work and Pensions: expenditure on service provision, but not benefit administration
Department of Business Innovation and Skills: focus on further education budget (vocational training) - clarify
Ministry of Justice: Probation and Prison opex, which are already partly outsourced
Home Office: Assume that 20% of the policing budget could be shaped as social impact
• For the purpose of this template, we have taken broad assumptions that appear reasonable
• Clearly important to do it accurately - as impact investment matures this picture will become
clearer
5
Backup
Procurement / Commissioning
Government funding dominates the sector
• Central and Local Govt dominate Sector - ~£250bn p.a. social expenditure (DEL)
Government Funded
Service Delivery
Government
procurement of
for-profit delivery
Government
procurement of
non-profit delivery
Foundation / Charity
procurement of
social value
-
E,g, Health, Education & Training, Policing, Prison & Probation, Welfare to work, Communities
• Upper estimate ~£150bn p.a. accessible to impact contracting
• Significant scale - £48bn p.a. (80% of all Value Sponsorship)
• Mostly Fee for Service, some Payment by results – e.g. Work Programme, Elder-care providers
• New statutory requirements for commissioners to consider social value when awarding contracts
Opportunity for
social enterprises to
gain share
• Small Scale yet growing share of public spending– was £4.3bn1 in 2000, £13bn in 2012 – expected to
be £25bn by 2016.Govt procurement doubling its share of non-profit sector income (15% -> 30%)
• More payment by results? – e.g. Troubled Families
• Social outcomes fund - £20m + BLF £40m to top-up outcome payments for SIBs
• Currently very small – foundations mostly grant funds, charities mostly self-deliver impact
• Opportunity for charities with large incomes to engage more with impact (e.g. City Bridge Trust, CIF, G
Weston, Save the Children, NSPCC, RNIB, Comic Relief)
• Individuals (£13bn) / Foundations (£3.6bn) / Corporates(£300m)
Grant-making / giving
Potential mutualisation
outsourcing to private
and social providers
• Of 70k social enterprises, 90% applied for some form of Grant funding in 2012
• Government, trusts and foundations are targets of 60% of all funding applications, the rest go to highstreet banks and specialists
Opportunity for
foundations to
increase impact focus
Donors beginning to
drive achievement of
impact
• Social Enterprise Sales (equivalent social impact procurement a small % of this)
Trading activities of nonprofit (maximising)
organisations
• Purchase of products / services because of social value of delivery (employment, social inclusion, etc.)
• E.g. Pluss founded by group of Local Authorities (£20m sales– employing people with disabilities and
supporting others into paid work)
• E.g AgeUK offering domiciliary care services to consumers
Note 1: Sources NCVO cited in Barclays Charity Review 2012, The First Billion - BCG
6
Procurement / Commissioning
Impact investment has started in the smaller procurement areas
addressed by Non-profits
Non-profits activity in Government social procurement = £13bn
40%
Expected CAGR (2012-2016)
35%
Criminal Justice
Housing
30%
Community
25%
20%
Healthy Living
Children and
Families
Government
Delivery
Employment
Disability
15%
Ageing
Education
10%
10%
5%
0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Existing non-profit share of Government procurement
Early Adoption of Impact Investment in Crim Justice, Children & Families and Employment
Source: The First Billion – BCG 2012
7
Backup
Social Need – government contracting with non-profits
Growth coming equally from growth of non-profit share and overall
contracting growth
Themes
2012
Nonprofit
contracting
Nonprofit %
of govt
contracting
Expected
CAGR
2012-16
Ageing
Personal Care – residential and domiciliary
£4.35bn
20%
13pts
Disability
Personal Care – for working age and children with disabilities
£2.67bn
40%
16pts
Education
• Special Educational needs, Special Schools
£2.66bn
30%
12pts
• School Service, Further Education and skills
Healthy Living
Community Health, Adult mental health, Drug and alcohol treatment
£1.43bn
12%
22pts
Housing
Niche housing & Homelessness
£760m
50%
27pts
Community
• Enterprises run with ex-public sector assets
£760m
60%
27pts
(right to
bid)
£630bn
10%
22pts
• Transport - HCT provides 12 million passenger trips in the social
enterprise bus company every year
Children and
Families
• Early Year childcare for disadvantaged families, Surestart
Employment
Employment services for long-term unemployed and young people
£188m
20%
19pts
Criminal Justice
Reducing reoffending – services in prison and in community
£76m
6%
35pts
Financial
Inclusion
CDFI-type lenders
£20m
10%
10pts
• Looked after children, Troubled families, Supporting young people
Other areas include: Climate Change, Social participation, Culture, carer’s services, school development, support services for crime victims
8
Non-profit Delivery Organisations
UK Charities and Social enterprises have a wide range of legal and
organisational structures, with different abilities to absorb risk capital
Legal structure of Social Enterprises
Sole
Proprietorship
6%
Company
Limited by
Shares
6%
Industrial and
Provident
Society
7%
Organisation type of Social
Enterprises
Leisure Trusts
6%
Other
14%
Charities
32%
Mutual/Public
Service Spinouts
5%
Community
Interest
Company
15%
Development
Trusts
1%
Companies
Limited by
Guarantee
66%
Cooperatives
11%
Non-profit
Service
Providers
31%
Source – Growing the Social Investment Market – GHK 2013
9
Backup
Non-profit Delivery Organisations
UK Charities and Social enterprises have a wide range of corporate
structures, with different abilities to absorb risk capital
• 32% of Social Delivery - Employment in Charity Sector is 765k
Charitable Service
Providers
Non-profit service
providers
Increasing ability to absorb risk capital
Cooperative
Development Trust
I
•
90% have turnover
<£1m p.a.
•
Capital
Requirements
expected to grow
from £18bn in 2012
to £35bn in 2016
•
Annual (commercial
and social)
Investment demand
growing from £3.8bn
to £7.6bn
•
Shift towards PBR
will increase social
vs. commercial
investment
•
56% of VCSEs
expressing
significant interest in
social investment
• Many Large players – e.g. Mencap (£193m turnover), AgeUK (£156m), CRI (£81m)
• Development of impact model creates a challenge to typical delivery structure –
many developing social enterprise arm (e.g. Age UK) – to take finance
• 31% - often a limited company
• Can take unsecured debt and equity-like capital
• 11% - Often a limited company
• Can take unsecured debt and equity-like capital
• 1% - engaged in social development/regeneration
• A mixture of legal structures – but do not take equity
• 5% -Often Community Interest Company – (in some circumstances can take equity)
Mutuals:
Public Service Spin-out
Leisure Trust
Non-profit (maximising)
trading companies
• Public Service Mutuals Growing: 71 established since 2010, Turnover now £1.1bn 1
• Half in Health, 33% in Social Care, rest Community and Education - E.g. Plymouth
Community Care
• 6% - often Industrial and Provident Society – can take Equity
• E.g. GLL (Community Leisure)
• Represent a large employment and service base – but social impact is derivative of
trading rather than procurement by third party. Can take equity
• E.g Café direct
Note 1: Source – Soft Finance, Hard Choices - BCG
10
Outcome Commissioning Structures
The Commissioning structure also varies significantly
Commissioning
trigger
Contracting Structure
Market shift from commercial
to social enterprise
Commercial Prime
Shift from contracting for
inputs to outcomes
Social Prime
Outsourcing of existing
activities
SPV (SIB)
Commissioning of new
outcomes (early intervention)
Direct Contracting by
delivery body
11
Delivery Market Regulation and Capability
Infrastructure required to support service delivery is emerging in six areas
Regulation
Delivery-Capability Building
• Community Interest Company (CIC)
introduced in 2005
• Advising on commissioning
• Right to run/provide
• Leadership accelerators
• New statutory requirements for
commissioners to consider social value
when awarding contracts
• Open Data – some development, but
much more possible to facilitate market
building
Impact Measurement
• Platforms
-
SROI Network, GIIN network,
SustainAbility
-
Social Finance
• Ashoka, Clore Social Leadership
Programme
• Social Entrepreneur Schools
Innovation Support
• Innovation Challenge funds
-
• Social Innovation venture labs
-
• Cooperatives UK, DTA – supporting
social enterprises scale up delivery
models
Shaftsbury Partnership, Participle
• Innovation platforms
-
Best-practice Sharing
NESTA Big Green Challenge, Age
UnLimited
Social Innovation Camp
Accelerators / Incubators
• The HUB, CAN Mezzanine, Wayra,
Social Accelerator
• Social Venture Networks - Ogunte
• Consultancies
-
NEF, NPC, Charities evaluation
services
Standardising impact measurement would
help to give investors confidence
12
Finance
£200m+ of Social Investment made in 2012 in 765 deals – mostly for
small (£10k-£250k) loans – up from £165m in 2011
Social Investment 2012
Direct
Grants /
Investment
Secured Loans
Unsecured Loans
Financial
Lending
Charity
Banks
Large
SIFIs
Small
SIFIs
£600m+
~80% of £3.5bn
Pool of debt
£165.5
£15.6m
£1.3m
6%-8%
£0.3
£8.8
£1.4m
7%-10%
£41m (often direct, with
Charity banks, large SIFIs
arranging)
Charity Bonds1
Equity / Quasi Equity
£5m
Capacity-building
grants
Big Lottery
Fund £30m
Cabinet Office
£10m
£5.7m
•
Social Investment
demand expected to
grow 38% per year – to
£1bn in 2016
(increasing share of
finance)
•
75% of social capital
will need to be risktaking (vs 10% today)
- 15% Equity-esque
- 60% Unsecured
lending
2%-6%
£22m
(2012 a stand-out year - 11
SIBs)
Social Impact Bonds
Typical
Gross
returns
£2.3m
(+ £2m
Incubators)
7%-13%
In addition, £150m of Big Society Capital Commitments – of which £15m drawn down
Note 1: 2013 Data for Charity Bonds
Source – Growing the Social Investment Market – 2012 – in many cases, net returns significantly lower than gross, due to high initial transaction costs
13
Finance
UK Impact-first enterprises reluctant to raise capital if required return over
10% - A challenge, given the associated risks
Source – Bridges Ventures
14
Backup
UK SIBs to date
#
Location
1
Nationwide
2
London
3
Policy area
Commissioner
Adoption
Contracting body
Voluntary Adoption
Agencies & Baker
Tilly (Consortium)
Homelessness
DCLG
NEETs
7
Wales - Cardiff
and Newport
West Midlands
- Birmingham
Thames Valley,
NW England
Perthshire and
Kinross
Nottingham
8
9
Investment
size
£3m
DWP
Greater London
Authority
3SC
£500k
NEETs
DWP
APM UK Ltd
£800k
NEET
DWP
Social Finance
£900k
NEETs
DWP
£300k
NEETs
DWP
West London
NEETs
DWP
Indigo Project
Solutions
Nottingham City
Council
Prevista
NEETs
DWP
NEETs
DWP
11
Shoreditch,
London
East London Newham /
Waltham Fst
Gtr Manchester
NEETS
12
Gtr Merseyside
13
Essex
14
Peterborough
4
5
6
10
£5m
Delivery Body
Action for Children, Adoption
Matters Northwest, After
Adoption, Caritas Care Limited,
Family Futures CIC, PACT
St. Mungo's and Thames Reach
Dyslexia Action and CfBT
Education Trust
Adviza
£2.7m
£900k
Tomorrow’s People
DWP
Impetus-Private
Equity Foundation
Stratford
Development
Partnership
Social Finance
£800k
Teens and Toddlers
NEETs
DWP
Triodos Bank
£1.5m
Child Protection
Essex CC
Social Finance
£3.1m
Greater Merseyside
Connexions Partnership
Children Support Service
Re-offending
MOJ
Social Finance
£5m
St Giles & Ormiston Trusts
15
Variety of Channels of capital – directed at social impact
16
Backup
Channels of capital – directed at social impact
A diverse landscape with many unprofitable small SIFIs
Social Investment
Wholesaler
Social Banks
Social Investment
Intermediaries
• Big Society Capital
• Triodos Bank, Charity Bank, Unity trust bank, Ecology Building Society
• Social Finance, Triodos, FSE, Allia, ClearlySo
• Of 25 SIFIs, 9 had
investments >£1m p.a.
• 16 SIFIs had
investments <£1m p.a.
• 89% of SIFIs expect to
increase their
investments in social
ventures over next 2-3
years
• 16 Small CDFIs – e.g. Social Investment Scotland, Key Fund
CDFIs
• For CDFI – Pool of investments is £750m by 2011
• # of CDFIs peaked in 2006, and now in decline
• Bridges / Big Issue / NESTA / SASC (part of SIB group) / Berenberg
Fund Managers
• Retail – Allia, CAF (Venturesome), Apposite Capital (Health Specialist)
• Commercial bank with social fund – e.g. Deutsche Bank
Tax Advantaged funds
Crowdfunding Platforms
• Not yet
Growth Constraints:
• Transaction Costs
• Variable Commissioning
Practices
• Lack of attractive social
ventures to invest in
• Grant-making
suppressing demand
• No dedicated funds
channel for endowment
PRI
• Funding Circle
17
Investment Market Regulation and Infrastructure
The infrastructure is emerging to support financing of impact investment
Investment Brokers /
Advisers
Market Builders
Capacity-building
Grant givers
Financial Product
Developers
Angel Networks
Data Capture /
Standard Setters
Research Houses /
Product Reviewers
Providers of
Standardised
Approaches /
Documentation etc
Regulation
18
Backup
Investment Market Regulation and Infrastructure
The infrastructure emerging to support financing of impact investment
Capacity-building
Grant givers
Market Builders
• Big Lottery Fund’s Next Steps programme has invested several million
• Esmee Fairbairn, Barrow Cadbury, Panahpur
• Social Stock Exchange, Ethex, Abundance, MicroGenius,
• Impact Base – international platform
• Limited brokerage – Investment and Contact Readiness Fund, ClearlySo
Investment Brokers /
Advisers
Financial Product
Developers
Angel Networks
Data Capture / Standard
Setters
• SIFIs – 16% offer brokerage, and 42% offer investment structuring
• Almost no authorised capacity to give impact investing advice to investors
• Social Finance, ClearlySo, but in general intermediaries not yet operating at sufficient scale
• Toniic / Clearly So
• EngagedX is emerging
• Research: ClearlySo, GHK, NPC, NCVO, SEUK, SE100, BCG
Research Houses /
Product Reviewers
• Financial Product Reviewers: Worthstone, Good Analyst
Providers of Standardised
Approaches /
• Centre for SIBs at the Cabinet Office
Documentation etc
• Potential Tax Relief for social enterprise investment – but how broad will be the perimeter – beyond Charities / CICs?
-
Could take several years to mature
• Community Interest Tax Relief (CITR) for investment into CDFIs
Regulation
• Social investment duty on FCA/PRA to encourage sensitive regulation
-
Review of regulatory barriers to social investment (esp Advice and Distribution)
-
Crowdfunding consultation underway by FCA
19
Investors
Where will impact investment come from?
Government investment (funding capital and capacity building)
Trusts and Charitable
Foundations
Local Funds
Traditional Institutions
Corporates
High Net Worth Individuals
Mass Retail
20
Backup
Investors
Where will impact investment come from?
Government investment
(funding capital and
capacity building)
• Historically a strong source of capital, but likely to be squeezed – bootstrapping role diminishing
• E.g. Future-Builders £200m - £80m outstanding
• Existing foundations’ investment is limited – estimated £45m in 2011 (Esmee Fairbairn total pool £30m)
Trusts and Charitable
Foundations
• Large Charitable foundations that hold significant reserves could help to rapidly extend and diversify
the supply of capital (£100bn of assets)
• PRI potential – but no dedicated UK Channel
Local Funds
Traditional Institutions
• Regional Growth Funds, local authorities, housing associations
• e.g. City of London Social Investment Fund - £20m
• Dominant Scale, but reticent investors often looking looking for opportunities that are not matched by
market (i.e.. They want close to market returns, downside protection, liquidity, track record of
success)1
• Exception - £250m Pledged from five local authority pension funds
Corporates
High Net Worth
Individuals
• Corporate Foundations emerging interest
• High net worth individuals could provide £180m p.a. in the future (contingent on impact of Tax
breaks)
• Vast majority want money to do social good as well as financial return – 15% have some investments
with ethical. Community, or social benefits
• IFAs / IFPs
Mass Retail
Growth highly
contingent on
tax relief
• Substantial Interest in social investment – even with trade-off on financial return
• Deposits at Charity Banks, Investment in Charity Bonds
Note 1: Source: ClearlySo
21
Conclusion - Social investment is in the “marketplace building” phase
Market Evolution – Micro-finance example
Marketplace building
Source: CAF Venturesome, Data obtained from the Microcredit Summit Campaign Report (2009
22

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