Wholesale change at Big Society Capital

Wholesale change at Big Society Capital
Civil Society, by David Ainsworth


It’s an interesting time to take over at Big Society Capital, the £600m wholesaler set up by the government to promote and grow the world of social investment.


Social investment is growing steadily, with considerable continued support from the Cabinet Office and the Conservative administration. But it has faced criticism, and so has BSC, under its previous chief executive, the former JP Morgan banker Nick O’Donohoe. The charges are that lenders are disconnected from the ordinary charities they are supposed to serve, that the money BSC distributes simply costs too much to borrow, and that social investment is not living up to its hype.


Enter Cliff Prior, a man with a very different provenance from O’Donohoe. He has spent his career entirely in the social sector, including most recently nine years as chief executive of UnLtd, the £133m endowment to promote and support start-up social enterprises.


Prior was invited to apply for the BSC job – “I was tapped on the shoulder,” he says – but he quickly realised that here was something he could get his teeth into.


His background means he comes from within the sector but is familiar with the rubric of social finance. Nonetheless, he says, he needs to learn more. “They often ask leaders what they plan to do in their first hundred days,” he says. “I have a hundred-day learning programme.”


Interviewed a week after starting the new job, Prior is happy to defend BSC’s record, but also accepts that more must be done to persuade the sector of the value of social finance.


He says he put forward three ambitions when he pitched for the job. The first was to focus more proactively on the social issues which needed to be solved, and to ask how social investment could address them.


The second was to encourage the general public into social investment through mechanisms such as crowdfunding – partly because the public can contribute money, but mostly because he wants their support – “to convert social investment from an institutional form of behaviour into a movement”.


But his third goal – what he describes as his “real long-term ambition” – is for social investment to no longer be the subject of curiosity and criticism and debate, as it is at the moment, and to make it into something which charities and social enterprises accept and understand. “I want to get social investment to a place where it’s accessible and understandable and a valuable tool in the toolbox,” he says. “I want to get social investment to become part of the mainstream.”


It’s not there yet. Recent BSC figures suggest the total amount of social investment is £1.5bn, in around 3,000 charities and social enterprises. Something over £425m of new money was invested in 2015.


This means social investment has essentially doubled in four years. But the sector remains tiny compared to the voluntary sector’s almost £44bn of income and £105bn of assets.




In the past, much of the work on growing social finance has centred around overcoming technical challenges – financial models and legal issues – but Prior now believes communication is the biggest issue facing his organisation. “There’s a great deal to do about understanding,” he says. “My very strong sense from both supporters and critics of BSC is that we need to get wider engagement. It’s all about reaching more people.”


One key thing, he says, is to explain to those in the sector what social investment can do for them. Here, he says, the best ambassadors are charities themselves.


“Awareness of social investment has got better,” he says. “There has been a lot of communication. But there is a big value to people hearing about it from someone like themselves. They need to hear about social investment from someone they trust.”


Even though the majority of charitable trading income flows from government, Prior says that social investment is not as well suited to helping organisations win government funding.


“The largest slice is actually direct-to-consumer,” he says. “It’s so much quicker. Commissioning is often very slow. If you have a start-up you can’t wait for government to make a decision. You want to get it off the ground quickly.”


To reach more people, social investment must be affordable. But BSC invests money in retail investors at a profit. And those investors too must make a profit. Most charities want quite small loans, and the high cost of due diligence on these investments makes it hard for them to be affordable. Can social-sector bodies take these loans, and still pay manageable rates?


“The price of money is something that keeps coming up,” Prior says. “I think it’s pretty fair to say that the interest rates on social-investment loans are low compared to the level of risk. But most charities work on paper-thin margins, so even modest interest rates might be unaffordable.”


Social investment corrupts?


Prior has also heard the criticisms that social investment corrupts – that it forces charities into serving the will of the lender, rather than the needs of the beneficiary. He is dubious. Anyone running a social organisation must think about both impact and funding, he says.


“I have worked in the social sector for 40 years,” he says. “You can’t run a social organisation without thinking about your surplus. And if you aren’t thinking about your impact, what’s the point of doing it? It’s like asking someone if they want to keep breathing or their heart to keep beating.
“So I don’t think social investment has forced anyone to do anything of the sort.”


Prior himself comes into the job with a reputation for favouring “profit-with-purpose” organisations, which do not have the asset lock that protects charities and social enterprises. But he thinks this has been overblown. And he says that profit-with-purpose businesses are less likely to need BSC money.


“The way to look at profit with purpose is that it’s fantastic that 20 to 25 per cent of people who want to create businesses would like them to have social purposes. If you’re distributing profit you have more options. You can raise commercial capital and it’s less likely you’ll need to look to social investment.


“At the moment BSC makes 90 per cent of its investments in asset-locked bodies and we wouldn’t expect that to change hugely.”


Over recent years, social investment has been the recipient of a laundry list of policy initiatives. Prior is not campaigning for more. “If I had a wish for the sector in the next Budget, it wouldn’t be for social investment,” he says.


Image problem?


Too many charities believe that social finance is full of – in the memorable words of social entrepreneur Liam Black – “eejits from the City sniffing around in their pinstripes, displaying an arrogant stupidity which makes me ache to slap their smug chops”.


Prior says this perception is not accurate – certainly not where BSC is concerned. “My guess is that most people think this place is full of people from finance and the banks,” he says. “And there are some. But we employ just as many people from the social sector. Hopefully we’ll gain the trust of people over time and people can see the reality.


“Social investment is about doing good. It’s not about fancy commissions making recommendations or about things determined by corporate interest.”


Most of the problems BSC faces, he says, are simply those of a new market, not yet well understood. He expects this to change as the movement gains critical mass.


“Doing something new is brave, and it’s easier to be brave in company,” he says. “The more organisations that club together to share expertise, the more success social investment will have.”