Building the Market

Our analysis indicates that the potential scale of social investment in the UK is vast. If just 5% of charity investment assets, 0.5% of institutionally managed assets and 5% of retail investments in UK ISAs were attracted to social investment this would unlock more than £10 billion of new finance for social projects. This finance would be in addition to the £11.2 billion that the social sector receives in non-government grants and donations each year. A tiny fraction of this opportunity is currently being realised.

While the last ten years have seen the emergence of a nascent social investment market in the UK, most social investment funds remain small and social investment continues to lack the infrastructure required for efficient market functioning. A range of market intermediaries is necessary to connect organisations seeking social investment and those seeking to invest.

Our experience, and that of others in the market, indicates that without dedicated support, this infrastructure would take many years to develop and may never gather the required momentum.

An effective and sustainable social investment market needs:

• Intermediaries focused on working with social sector organisations to develop their investment readiness (e.g. business planning, financial planning, legal and corporate finance advice);
• Intermediaries focused on building investor confidence in social investment (e.g. investment research and advisory, investment innovation and structuring and investment syndication); and
• Funds focused on providing appropriate finance to social ventures (e.g. social enterprise equity and property funds, social purpose loan providers, outcome-linked funds and funds-of-funds).

Social Finance believes that, appropriately defined, the Big Society Bank could play a key role in facilitating the creation of a vibrant service provider market by strengthening the social investment market in these ways.