UK launches 7 new social impact bonds, Nordic countries gear up to follow

Signs that the social finance market is taking hold.

The UK government has announced seven new social impact bonds to support vulnerable children and launched a charitable foundation to support social investment. The move comes as Sweden is set to launch its first social impact bond later this year, and separately JP Morgan announced two new impact investment funds. The announcements are signs that the social finance market is growing quickly.
Iain Duncan Smith, the UK Secretary of State for Work and Pensions, yesterday (March 18) wrote in the Daily Telegraph newspaper in that social investment would “revolutionise public services” as he announced the seven new social impact bond programmes aimed at help disadvantaged young people, children in care and those with long-term health conditions and mental illness.
The social impact bonds will be supported by UK government departments and will provide a return to investors if measurable outcomes to support young people are achieved.
Bridges Ventures, the London-based impact fund manager, has committed £1.4m (€1.9m) to two of the new social impact bonds as part of its pooled £25m (€34.6m) social impact bond fund, which is backed with institutional capital. The Impetus Private Equity Foundation, a charitable investor, has also backed the pay-for-performance bonds.There are now 31 commissioned social impact bonds in the UK, a number that is likely to grow quickly. George Osborne, the UK Chancellor of the Exchequer, announced in his budget this week that the UK Treasury will look at the scope for reducing the government’s £4.3bn (€6bn) spend to support people struggling with homelessness, addiction and mental health problems through social investment programmes. The government also announced measures to introduce “social venture capital trusts” which will allow multiple investors to pool money in a fund for social investment and benefit from social investment tax relief, allowing investors to reclaim up to 30 per cent of their tax. The move will likely spur retail social investment.
Separately the government will today (March 19) launch Access: The Foundation for Social Investment, a new charitable foundation to help organisations access social investment capital.
Access, which will be independent from government, is being funded with a £60m (€83m) endowment from the Cabinet Office and a £22.5m (€31m)grant from the Big Lottery Fund. Big Society Capital, the organization set up to promote social finance, will match the government’s grants with up to £22.5m (€31m) in loan funding.
Access will initially develop two programmes, delivered through intermediaries. The first is a ‘Growth Fund’, which combines grants with

loans for social lenders to offer investments to charities and social enterprises. The second is a capacity building programme to help organisations take on social investment and become financially robust over time. Access’ new Chief Executive is Seb Elsworth who is currently Deputy Chief Executive at the Social Investment Business, which gives loans to charities and social enterprises. Its Chair is John Kingston, a Non-Executive Director at Big Society Capital and founder of CAF Venturesome, which provides loans to charities.
In Sweden, the planned pilot social impact bond to reduce the level of truanting children is being developed in a municipality in Stockholm. Speaking to Responsible Investor, Thomas Arctaedius, founder of the Center for Social Entrepreneurship Sweden, said it was leading on the pilot after receiving funding from Vinnova, a Swedish government agency for innovation. He said the social impact bond was likely to launch towards the end of the year and potential investors are being approached.
There is increasing interest among Swedish local authorities for social investment. Talking to RI, Tomas Bokstrom, a project manager with the Swedish Association of Local Authorities and Regions, said Swedish local authorities were looking at pooling resources to create social investment funds. He said a number of investors were scoping the area, including major banks and insurers.A Nordic network on social impact bond development is also set to have its first meeting on March 30. Along with Sweden, Norway is looking at a pilot social impact bond focussing on reoffending and low-income housing. Finland is looking at ‘wellbeing’, according to Camilla Backstrom, a senior policy advisor at the Forum for Social Innovation Sweden who was talking about social impact bonds in the Nordic context at a recent webinar organised by the European Venture Philanthropy Association.
Of JPMorgan’s two new impact investment funds this week, one will tackle dementia in partnership with the UK government. The fund is in early stages of development and has a commitment of $100m (€94m) from investors. The other, a $10m (€9.4m) private equity fund, is being run with the Omidyar Network, the philanthropic foundation, of eBay founder Pierre Omidyar, and will focus on supporting low-income groups in Brazil.