Fund managers: We invest with fund managers and social banks rather than directly.
The dormant accounts act sets out our wholesaler role as investing to "assist or enable other bodies that give financial or other support to third sector organisations".
Frontline Eligibility: We invest with fund managers that provide financial or other support to charities and social enterprises.
Charities and social enterprises or "third sector organisations" are defined by the dormant accounts act as those that"exists wholly or mainly for the benefit of society or the environment".
In interpreting this we are aiming for the majority of our investment to benefit asset locked organisations, such as charities and CICs. In some strategic areas,where our capital will also benefit for-profit social enterprises, we will ask for additional protections.
State Aid: We require you to be addressing an area of market failure and that you are able to demonstrate that you understand the State Aid implications of your investments.
Political Neutrality: We require that your investment decisions are not influenced by party political considerations.
Transparency: Transparency is one of our founding principles, part of our investment agreement with you will include transparency requests.
Responsible Business Principles: We will also ask you to sign up to these and to undertake that your investees will also do so. These are not intended to be onerous, and cover basic behaviour that most businesses would consider standard practice, including fair treatment of employees and upholding high standards of integrity.
Requirements where we have some flexibility
Size: We generally invest between £500,000 and £15 million.
Structure: We can invest through a variety of structures, such as direct debt in a fund manager or pooled vehicles like limited partnerships. We have the ability to use other means such as underwriting or direct investments where we believe this is the most effective way of tackling market failure and addressing social issues.
Term: We generally look to build in an exit to ensure we can recycle our capital into new investments - most of our investments have been between 3-10 years. We have made some perpetual investments, such as Social and Sustainable Capital'sCommunity Investment Fund, where we believed it was the best way to build social value.
Co-investment: We will look for at least 1x like-for-like match to each investment, though we aim for a higher overall match across our portfolio. In some cases, we have considered short-term refinancing as a match - for example the Pure Leapfrog Bridge Loan which is bridging to community share issues. We have also relaxed our match policy where our board has highlighted a strategic priority - for example the need to seed more unsecured loan funds.
Geography: We invest to grow social impact investment in the UK.
Governance: In many of our investments we represent a large proportion of total capital, and in those cases will request a role in the governance of the investment, such as an observer role on the Investment Committee.
Returns: We assess the financial return against likely risk, the impact in people, the potential to change the system, and its ability to attract the other investors we require. We do not have a set return target and invest at a wide range of return levels. For example, we have invested at expected returns close to zero (for example with our Crowdmatch Fund) where we believe we can crowd other investors in over time – in this case as we are catalysing the use of Social Investment Tax Relief. In other cases, we have invested with expected double-digit returns (for example with social venture funds) where these returns are needed to bring in other investors given the expected risk profile. We then allocate our portfolio to achieve our overall target return of 4-6%.
Social impact: We prioritise interventions and organisations that improve the lives of the most vulnerable and disadvantaged people in the UK. We have invested in other impact areas where the investment contributes to our broader strategic objectives.
This stage is designed to quickly identify if your proposal meets with our investment criteria and strategy before we embark on due diligence.
This stage aims to build an externally tested understanding of the social issue and your proposed solution.
This stage aims to formalise the goals and responsibilities that have been agreed between us.