Thursday 15 November 2012

Impact Investment: Doing good whilst making a profit

The launch of Social Impact VCT, enables investors to invest “with both their heads and their hearts” in a tax-advantaged vehicle.
Yesterday afternoon at our offices we saw the launch of the Social Impact VCT. The fund aims to make use of the existing tax incentive scheme to create a pool of readily available investment capital immediately deployable among socially driven companies in the UK.
  1. Support the growth of socially motivated companies which make a distinct positive contribution to improving UK society
  2. Capital preservation and predictable cash flows due to focus on established companies and companies whose revenue streams are wholly or partially underpinned by delivery contracts
  3. 30% income tax relief in year of investment, tax free dividend and capital gains.
  4. Planned Exit: return of capital planned for years 6,7 and 8
  5. Dividend planned from year 2 onwards.

The VCT will be managed jointly by FSE Fund Managers and Social Finance. It will focus on profitable and/ or growth companies delivering measurable social impact. As part of the launch we heard from the following two socially motivated companies.

CREATE Foundation is a company aimed at providing a place where people can rebuild their life and hope, in the form of work. It is a “for more than profit” company, this means they run a great business, but profits are ploughed back into training, work experience and jobs for people who need them most. In January 2011, they became only the second company to be awarded a Big Society Award by David Cameron.
CREATE is a social enterprise, and this means that it applies “capitalist strategies to achieving philanthropic goals.” The government defines social enterprises as businesses with social objectives whose surpluses are reinvested in the business or in the community, rather than maximising profit for shareholders and owners.

Another example of a social enterprise is Bromley Healthcare, a new community interest company founded of 800 people who will deliver a wide range of NHS Services to people of all ages. From health visiting to district nursing, school nurses to specialist nurses, their nursing services help new parents to care for new born children and older people to continue living at home through care and support. In addition to this broad range of nursing services they also have a wide range of therapy services for adults and children. This includes speech and language therapy, physiotherapy and occupational therapy.

Both Create and Bromley Healthcare are examples of companies that would benefit from Social Finance’s VCT and would in return offer duel level benefits for the investors (both financial and social).

This is a relatively new asset class, but it is growing. However there is still a problem surrounding the understanding of it. What is needed is the development of a clear message to outline to potential investors the financial returns available from social investments as well as the social benefits delivered. It is not philanthropy, but investment with “twice” the return both financially and socially.

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