UK government proposes new social investment “asset class”

Call to pension investors to step up to “Big Society”

The UK government has fleshed out its ideas for social investment as part of its controversial “Big Society” programme.

The ideas include a “Big Society Bank”, a social stock exchange, social bonds – and far greater involvement of pension fund investors in the emerging social investment “asset class”.

“We want to see new social finance intermediaries enter the market, not least mainstream financial institutions that can see the potential to develop a new ‘asset class’,” the government said. “Investment advisers such as wealth and pension fund managers must seriously consider social investment products as and when they emerge.”

Traditional investment managers, advisers and pension funds should be “prepared to invest a greater proportion of their assets and their clients’ assets in social investments”. They would need to build the resources and expertise for “this new class of assets”.

Large investors such as philanthropic foundations and ‘high net worth’ individuals should start to see social investment as a core proposition in their portfolios.

The government reckons there is a lack of secondary markets, or ways to ‘sell on’ social investments.One idea is for a pilot social stock exchange, or incentives for existing stock exchanges to develop a social ventures market.
The ideas are outlined in a new 66-page document called Growing the Social Investment Market: A vision and strategy. The Big Society is a key idea of Prime Minister David Cameron but critics see it as a cover for cutting funding to public services.

The government also said the proposed Big Society Bank could back social ISAs (retail Individual Savings Accounts). The report says it is the UK’s “millions of socially responsible savers” with trillions of pounds of assets who can take the market to “full maturity”.

The study envisages investment funds developing new investment vehicles and building market infrastructure such as exchange platforms and investment portals.

“So our vision is to create nothing less than a long-term ‘third pillar’ of finance for our crucial social ventures, alongside traditional giving and funds from the state,” the report states.

The Big Society Bank, which will launch from April, will be capitalised with a £200m injection from the largest UK banks and from up to £100m from dormant accounts.