What are social impact investment funds?

Social impact investing more broadly

Before we look at social impact investment funds specifically, it’s important to understand social impact investment more broadly. Better Society Capital defines it as ‘the targeting of capital towards business models and assets seeking to contribute to solutions to the world’s societal challenges, helping to build stronger communities and improve lives’.

Social impact investments aim to generate positive, measurable social impact alongside a financial return. Social impact investing falls under the wider umbrella of impact investing, including investing for positive environmental impact.

Organisations or projects that have a social mission that aims to create positive change can benefit from social impact investment. These investments tackle a broad range of social issues, including social inequality, access to healthcare, and affordable housing. Additionally, they support people who are experiencing disadvantage, facing specific social challenges or who are underserved by more commercial business models.

Big Issue Invest invests in social enterprises, purpose-driven businesses and charities creating core solutions to end poverty in the UK. Since 2005, we’ve invested over £90m in more than 320 social purpose organisations. These organisations all share the Big Issue Group’s mission to unlock social and economic opportunity for people affected by poverty.

Social impact investment funds

These funds enable specialist fund managers (such as Big Issue Invest) to pool money from investors and invest it into social purpose organisations. Social impact funds can choose to invest in a single asset class or multiple asset classes, depending on the investment strategy. Asset classes can include debt, equity, and hybrid models such as quasi-equity, revenue share, and social outcomes contracts.

Social impact investment funds in practice

Social impact investment funds embed the principles of social impact investment into their investment strategies and governing legal documents. Here are some examples of how this is done in practice:

1. Impact Thesis: Social impact funds will have an impact thesis. This an investor’s strategy for delivering on their impact objectives for the portfolio of investments. An impact thesis typically includes sectors or social issues targeted through the portfolio.
2. Theory of Change: A social impact fund may also have a Theory of Change, this is a comprehensive description and illustration of how and why the fund will achieve its intended impact.
3. Investment Process: Every stage of the investment process, from origination to due diligence to the decision-making stage must incorporate social impact investing considerations. For example, at the due diligence stage, analysis of social impact forms a crucial part of the wider diligence of the investment. Fund managers often incorporate recognised industry frameworks in this analysis, such as the Impact Norms’ Five Dimensions of Impact.
4. Legal Documentation. A social impact fund’s legal documentation will often resemble that of mainstream investment funds but will include elements that establish the fund’s social impact focus. For example, an Investment Policy Statement (IPS) establishes objectives, investment policies, and governance oversight for the portfolio. The IPS will include the impact investment philosophy and may define the types of social organisations and sectors it will invest in, as well as any investment restrictions.

How is impact measured?

An essential characteristic of any impact fund is impact measurement and management. A fund’s impact thesis will detail the impact objectives for the fund, and will be the basis for impact measurement. This is the process at Big Issue Invest:

• We collect baseline impact data for each investee during the impact diligence process. We do this through our Social Impact Charter, a proprietary tool designed to benchmark impact across BII’s portfolio of investments.
• We use the baseline data of individual investees, as well as the fund’s specific impact KPIs, to establish meaningful impact KPIs for the lifetime of the investment.
• We track impact KPIs through regular data collection (self-reported by the investee), an annual social impact survey, and a survey when BII exits the investment.
• We aggregate the data across the fund’s portfolio and feed this into annual impact reports for the fund.

Examples of social impact investment funds at Big Issue Invest

Big Issue Invest’s FCA-regulated fund management arm was established in 2013, and has since raised and deployed three investment funds:

• Social Enterprise Investment Funds I and II
• Outcomes Investment Fund.

BII is now deploying from, and fundraising for, two investment funds:

• Social Impact Debt Fund IV
• The Growth Impact Fund

Social Impact Debt Fund IV provides loans between £1m-£4m to established socially impactful organisations in the UK. It’s core sectors are Health and Social Care, Affordable Housing and Homelessness, and Community and Social Infrastructure. In particular, the fund aims to invest in areas of poverty and deprivation and seeks to increase accessibility to these services. The Growth Impact Fund provides equity, quasi-equity and debt between £50k to £1.5m to diverse-led social enterprises tackling inequality in the UK.

To find out more about investing in social impact funds at Big Issue Invest, please contact rebecca.moss@bigissueinvest.com or james.potter@bigissueinvest.com