Social-impact investing: just a PR tool?

The recent appointment of LDC's Tim Farazmand as chairman of the BVCA highlighted one of the UK private equity industry's biggest and continued challenge; its negative public portrayal. Farazmand has stated he will focus on social impact investment in his new role. With just one year until the general election, Farazmand and the BVCA are keen to ensure that private equity is accepted as a force for good – and the industry's increased focus on social-impact investing is a neat way of rebranding the asset class.

Making an impact
In September 2012, social-impact investing was put in the spotlight when UK prime minister David Cameron launched his "Big Society" project, with government-backed investor Big Society Capital (BSC) investing around £37m into three fund managers with a social impact angle. Furthermore, the City of London Corporation invested £10m into the Investment and Contract Readiness Fund (ICRF), managed by the SIB Group, which aims to better equip social ventures to secure new investment and compete effectively for public service contracts.

In its interim review, conducted by Boston Consulting Group, the ICRF claims to have so far raised £21.4m of investments and won £13.5m of contracts. Based on this success the fund believes it could support social venture in winning investment and contracts worth more than £100m. The interim review states: "The success of the ICRF to date should be celebrated." But, while still in its infancy, and with no evidence of how successful these investments will be in the future, it may be a little premature to be popping the champagne just yet.

Social norms
But, despite limited amounts of data on the impact and success of social-impact investing, the positive implications of this new development should not be ignored. "Momentum is building for social-impact investment around the world and the UK is a world leader in this arena," says Daniela Barone Soares, CEO of Impetus-PEF and chair of the working group on capacity-building for the UK National Advisory Board of the G8 Social Impact Investment Taskforce (pictured). "While this growth is attracting a great deal of attention, future success will depend on the extent to which we have a social sector that intentionally and consistently produces high-impact results. It is this factor that will drive both social and financial returns."

One firm already championing the benefits of social impact investing is of course Bridges Ventures. Now in its 11th year of investing, the investor has undoubtedly proven that social-impact investing can go hand in hand with financial gains. Its investment in value-focused gym operator The Gym, which targets socially deprived areas enabling job growth and access to gym facilities for those otherwise deterred by soaring membership fees, achieved a 3.7x money multiple when sold to Phoenix Equity last year. Bridges' successful investment has proven that deep societal changes can and do create opportunities for growth.

Perhaps a more compelling feature of Bridges Ventures' development over the last decade is its LP base, which now counts institutional investment as its largest source of capital. Today, investors in Bridges' funds include banks, pension funds, family offices and endowments.

With many LPs demanding a nod towards environmental, social and corporate governance when assessing funds, a deeper focus on the social impact will surely pique the interest of potential investors further. Not only will an eye on social impact investing aid the fundraising process, if done properly it will work towards achieving wider government aims of building a fairer and more sustainable economy, while surely winning over the public too. As Barone Soares points out, the UK is leading the way for social impact investing, and now is the time to address the opportunity in a serious manner.

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• UK / Ireland
• BVCA
• Bridges Ventures
• LDC
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