The funding landscape in the voluntary sector is changing and sector leaders are having to be innovative and flexible in order to continue to be effective. As the field of social investment grows rapidly, organisation leaders have to find new ways to finance their work.
Earlier today, Eastside Primetimers hosted a knowledge-sharing event where our members – Eastside Primetimers’ unique network of over 100 experienced consultants – heard from leaders in the field about their investment funds, followed by questions and a discussion of current and future trends.
We invited Carolyn Sims, Head of Banking at Charity Bank – one of the sector’s most established funders – and Phil Caroe, Director of Social Finance at Allia, which is a cutting edge social investment provider pioneering the issuance of charity bonds.
Carolyn Sims, Charity Bank
Carolyn explained Charity Bank’s role as being the “bridge” between social investors and enterprising community organisations. It operates as a traditional bank which doesn’t borrow on the money markets, and though it started out catering to social sector organisations rejected by traditional finance providers, it is now the “lender of choice to the sector” – it can lend up to £2.5m. Social impact is a key part of their ethos and assessment criteria, and Carolyn identified social housing, religious organisations and social care as key growth sectors. Interestingly, among Charity Bank’s successful investment projects was the Old Street CAN Mezzanine social sector hub where the event was held, along with the charity House of St Barnabas, which Eastside Primetimers played a key role in making investment-ready. In response to an audience question about how Charity Bank’s interest rates compare with the high street, Carolyn explained that they can vary based on project risk but are competitive, and when asked about debt write-offs, she revealed that the Bank has written off less than 1%. The most important thing about an application for investment was a robust business plan and stress-testing, which she noted Eastside Primetimers as specialising in.
Phil Caroe, Allia
Allia has been a charity since 1999. Charity bonds were launched to meet demand among corporate investors for smaller listed bonds. Phil outlined how they can be held in an ISA or SIPP and can be bought or sold before they reach maturity. They meet a growing demand for ethical financial products, and Allia has doubled the supply of what used to be a very niche product. Allia are able to act as special purpose vehicle for these bonds in the market which helped minimise legal costs through standardised documentation. Allia bonds can be £10-50m in value – Phil noted that they can offer investors an interest rate of 4-4.5% and are covenant light (there is no assigned manager to demand regular updates). Bonds also raise the profile of the charity and are attractive to individuals who already donate traditionally to charities but could be persuaded to support another cause if there is a financial aspect for them as well. Phil elaborated that a track record of impact is key, as this provides a “story” to tell investors about what their money will be aiding – in response to a question about how charity bonds are currently seen, Phil said there was a “perception issue” around charities being investable. The process for launching a bond encompasses an application, due diligence, approval and a roadshow with key investors before receipt of funds, and usually lasts around 3 months.
Our subsequent discussion hit on several topical issues in the sector at the moment. Part of the discussion focused around what social investors are looking for in terms of social impact measurement. Carolyn noted that Charity Bank has a dedicated staff member for impact measurement, and that demonstrating the role of beneficiaries can be key for social impact, while Phil stressed impact measurement as key to charities being able to “tell their story”. By contrast, new stand-alone ideas are harder to find funding for, Carolyn noted.
Right to Buy and its impact on investment for housing associations was raised by one member – Phil spoke about how a bond launch for the Hightown Housing Association was nearly affected. And a recent report on social investment by EngagedX and the Social Investment Research Council, which found investment had had a total financial return of negative 9.2%, was also raised – Carolyn noted that Charity Bank had managed a very low debt write-off rate of less than 1%, while Phil noted that some investors are informed they may not recoup all their money, but bonds specifically have a full return expectation. Asked about the role of social investment in helping social sector organisations maintain the cashflow they need to access Payment by Results (PbR) contracts, Carolyn was able to reveal that Charity Bank are investigating the potential for a contract-financing product for the sector.
Lastly, several members and our speakers also remarked that more trustees need greater knowledge about social investment. Though social investment of course won’t be the right choice for everyone, risk aversion continues to be an issue in the sector and this is felt to be holding back the embrace of social investment, which could represent a real opportunity for many social sector organisations to secure and scale themselves and deliver more for beneficiaries.