Earlier this week, the Cabinet Office released its progress update on the development of the UK’s social investment market, which follows on from the Social Investment Strategy document it published last year. The update is concise and accessible - well worth reading by anyone with an interest in the sector.
Much of the update is positive, which we hope signals a profound government commitment to the social investment sector in the years and months ahead.
Of particular value was a summary of market developments since the launch of Strategy document. We were pleased to see CAF Venturesome getting a couple of mentions: firstly, in the guarantee of our £115,000 loan to Arts @ The Old Fire Station in Oxford by the city’s council in November last year, and secondly, in our launch of the CAF Social Impact Fund – which celebrated its first birthday on Wednesday!
Naturally, Big Society Capital featured prominently in the update, and included in the market developments section was a list of its investments to date. We thought this was very helpful in terms of broadening public understanding of the role of the institution as well as cultivating an ethos of transparency for what is, after all, a government initiative.
Whilst we are excited to see the arrival and progress of Big Society Capital to date, we remain aware that it will not meet all of the demand in the sector. A primary concern is the rate of return Big Society Capital is reported to be expecting on its investments, which, given the current state of the market seem particularly ambitious.
The government’s aim to “enable and encourage more high-net-worth individuals, charitable foundations and mainstream institutional investors to invest in social ventures” is good to see. The size of the social investment market remains small relative to, for instance, the size of philanthropic giving so market engagement with the wealthy must remain high on the policy agenda.
On the subject of policy, the stated priority to review the legal and regulatory barriers to social investment is important since it is becoming increasingly apparent that these are pressing issues when it comes to developing the social investment market. On this point we note that the proposed social investment amendment to the Financial Services Bill that is currently in the House of Lords is vital, because it would introduce for the first time a requirement on the financial regulator to consider the particular needs of social investment. This is crucial because the fact that the FSA currently does not recognize the ‘social’ element behind investments means that non-financial investor motivations and social returns are not properly encouraged by the legislature.
Finally, the intention to capitalise on the UK’s fast emergence as a worldwide hub for social investment is both ambitious and inspiring. Much needs to be done to truly realise this both in terms of supply side infrastructure (e.g. developing the regulatory framework as discussed above) and demand side investment readiness. Nevertheless, this sends a powerful message to all those working in the sector.
We look forward to seeing how the market evolves in the coming months.