Local impact funds


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The presentation was a workshop at NCVO's European Funding Network's event LEPs, Growth and EU funds on Wednesday 25 September 2013.

The presentation was by Azlina Bulmer Charity Bank, Sam Tarff, The Key Fund, Chris Dadson, Social Investment Business and is a guide to Social Investment and Local Impact Funds.

Find out more about the event 'LEPs, Growth and EU funds': http://europeanfundingnetwork.eu/events/engaging-with-your-leps

Find out more about NCVO's European Funding network: http://europeanfundingnetwork.eu/

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Local impact funds

  2. 2.  General introduction Azlina Bulmer Programmes and Development Manager The Charity Bank  Lessons and thoughts from the 2000 – 2006 and 2007 – 13 programmes Ann Oldroyd Former Chief Executive The Key Fund  Developing the two Local Impact Fund pilots Chris Dadson Business Development Manager The Social Investment Business Group Speakers
  3. 3. Azlina Bulmer Charity Bank GENERAL INTRODUCTION
  4. 4. This presentation describes how a ‘Local Impact Fund’ financial instrument can help direct EU monies towards investment into local places to increase positive social and economic activity. This is known as ‘place based social investment’, and can help support EU objectives to increase jobs and growth in local areas, grow a social economy and support social entrepreneurship. Local Impact Funds are a key mechanism for delivering place based social investment. They: • Combine (i) wrap around business support with (ii) growth investment. • Use European Structural and Investment Funds (ESIF) to leverage private (social) match. • Connect European, national and local supply of monies, with local demand for finance. • Support local economic and public services strategies. There are existing examples and case studies showing how social investment has achieved this in the 2007-13 EU programme. There are two pilot Local Impact Funds being established to test the instrument and extract learning and lessons. These have an expected launch date of December 2013. Executive summary
  5. 5. Charities and social enterprises make a positive difference to society and the economy • 38% of social enterprises work in the 20% most deprived communities in the UK (compared to only 12% of SMEs). [The People’s Business, SEUK, July 2013] • £1 of public spend into social enterprises creates £6.25-£8.33 of GVA (compared to £3.57 across all markets). [Evaluation of CDFIs, GHK, 2010] There is a massive unmet demand for social investment • The funding gap for charities and social enterprises in the UK is estimated at £1.3 bn - £2.1 bn annually, in contrast, the amount of social investment deals made in 2012 was £286 million. • The social investment market is set to grow at an average of 38% annually up to an estimated £1 bn of done deals in 2016, yet this is not enough to meet the demand from the sector. There is money available to grow the supply of social investment • Big Society Capital (BSC) was launched in 2012 as a wholesaler with up to £600 m, looking to (i) invest in social investment intermediaries / funds, (ii) attract new investors into the sector. • The UK allocation of the 2014-20 ESIF, estimated at c. £6 bn, can help stimulate innovation and sustainable economic growth in some of the most deprived parts of the country. What is now needed are the mechanisms for connecting supply to demand… Context and rationale
  6. 6. Vision • Local Impact Funds will be locally driven, flexible, and responsive to need and context. • Local Impact Funds will provide a tailored package of support and finance for charities and social enterprises at all stages of their journey, from start up to sustainability and growth. • Local Impact Funds will draw together into one place an appropriate blend of national and local actors and interventions, achieving more through the sum of its parts. • Local Impact Funds will support social economic growth anywhere in the world, therefore learning should be shared with interested partners across Europe. Proposal • Local Impact Funds to become a major new financial product for the sector. • 2 pilot Local Impact Funds to be established in late 2013. • All LEPs to consider establishing a Local Impact Fund in their area in 2014-20. • For Local Impact Funds to build on existing local and national infrastructure and business support, thereby enhancing and not duplicating the activity of local organisations. • Local and national investors to gain confidence in the instrument, so that in time new investors can replace ESIF and help grow a local social economy. Vision and proposal
  7. 7. Framework • Source investable charities and social enterprises, identify potential future investees, and assess their support needs. • Support charities and social enterprises on their journey towards growth and sustainability, drawing on existing support, and designing new support structures where relevant. • Fund them in a way that is flexible and responsive to their needs, not the needs of investors. For a Local Impact Fund to work over the long term, a model of support and finance should be designed that helps: • Encourage continuous learning and evaluates what works best in a local area.
  8. 8. Local Impact Funds model* *This diagram is for demonstration purposes, and the figures and amounts may be different in practice Local Impact Fund National social investors Charities and social enterprises Beneficiary Intervention Investor Money Expertise Close link KEY Local social investors Big Society Capital TBC LEP (structural funds) TBC Pipeline support Equity/debt Grant Grant makers Grant Key Questions: 1. Terms of EU money? (pari passu? Grant component? First loss?) 2. How much pipeline support is needed? 3. Who pays for costs? • Set up costs. • Legal costs. • Evaluation
  9. 9. The Fund Manager • Local Enterprise Partnerships (LEPs) will have to chose an appropriate Fund Manager to deliver the Local Impact Fund. • The Fund Manager could be a: o Social investment finance intermediary (SIFI) o Community Development Finance Institution (CDFI) o For profit fund manager. • LEPs may have existing relationships with local, national or international organisations that they will want to draw on, to help them establish a Local Impact Fund. • Otherwise, LEPs could speak to the following organisations for advice on the matter: o Big Society Capital (BSC) o Social Enterprise UK (SEUK) o Community Development Finance Association (CDFA) o National Council for Voluntary Associations (NCVO) o Association for Chief Executives of Voluntary Organisations (ACEVO).
  10. 10. Different investors are interested in different outputs and outcomes Measuring performance EU monies Social investors For profit investors • Outputs, results and impacts (as below) • Financial performance • Social performance • Financial performance EU outputs, results and impacts • Jobs created. • Jobs safeguarded. • Social enterprises assisted. • Businesses assisted to improve. performance. • Private sector investment leveraged. • Increase in Gross Value Added (GVA). • Increase in employment. • Change in employment rate in target areas or target groups. • Net additional employment in additional areas. Social performance • Understand the change you want to make and who you want to make it to. • Big Society Capital has a helpful outcomes matrix that you can consult to help you design a measurement system. Financial performance • Measure results in monetary terms. • Reflected in an income and expenditure report. • Results are also reflected in the charity / social enterprise return on investment.
  11. 11. Key milestones April 2013 Local Impact Funds referenced in BIS preliminary guidance to LEPs July 2013 Local Impact Funds included in supplementary guidance to LEPs Sept – Dec 2013 Information sharing events December 2013 Launch of the 2 pilot Local Impact Funds January 2014 Gain EC agreement for operational programmes Mar - Sept 2014 LEPs to commission proposals for Local Impact Funds, as relevant Autumn 2014 First full Local Impact Funds become established 2015 – 2020 Local Impact Funds rolled out across England. Aspiration for 10 – 20 Local Impact Funds to be created
  12. 12. Sam Tarff Key Fund Lessons and thoughts from Key Fund
  13. 13. Key Fund’s 12 year Experience of managing Local impact funds with ERDF • Key Fund is a CDFI specialising in distributing EU & UK funds to the Social Sector in the North. • Total ERDF/ESF £33.6m - £22.6m in Loans 11m in Grants • Match Funding from Public (SRB,NR,CRT) and Private sources (RBS, Unity) • 2000 - Organisations invested, 175 - New Start Ups, 1882 - Jobs Created/ Safeguarded, 6500 - Training Opportunities • Lead body on Social Incubator North & £20m ERDF Consortium in Y&H • 75% of investment in 10% most Deprived areas
  14. 14. Key Fund’s Experience of managing Local impact funds with ERDF • Sector needs ‘Patient Capital’ Fast, Flexible and risk friendly investments. • Managing ERDF & ESF programmes is complex, requiring highly skilled staff , well development admin capacity • Local market knowledge and understanding of the needs of Social Sector is essential to avoid investment mismatches • Success is reliant upon a mix of funding & support, good referral relationships i.e. Charity Bank and other investors • Effective use of ERDF requires subsidy to create investment readiness capacity in the sector and a sustainable legacy for CDFIs
  15. 15. Chris Dadson Social Investment Business Group THE 2 PILOTS
  16. 16. 1. The Liverpool City Region (LCR) Impact Fund is being designed as a partnership between Social Investment Business Group (SIB) and Social Enterprise North West (SENW). 2. We are looking to launch the £4m 18 month pilot Fund by the end of December 2013, to invest into c.40 charities and social enterprises by June 2015. 3. This pilot draws on existing ERDF investment from the 2007-13 programme, and is being accessed through an existing project: Big Enterprise in Communities (BEiC) programme. 4. BEiC is a £7m business support programme for Liverpool City Region being run by SENW, and will provide the Fund with a pipeline of investable organisations. 5. We are in the process of seeking approval for a £1m ERDF investment into the Fund, which could potentially leverage up the same amount three times over. 6. SIB will match this ERDF investment with an investment from our Communitybuilders endowment, then submit an application to Big Society Capital (BSC) for further investment. Liverpool City Region Impact Fund
  17. 17. 1. The Northamptonshire Impact Fund is being developed in partnership between SIB, the University of Northampton and UnLtd. 2. We are looking to launch the c. £6m 18 month pilot Fund by the end of December 2013. 3. As there is no ERDF investment from the 2007-13 programme to access for this, other investors have been approached: local public and private investors have committed £2m. 4. This Fund will support charities and social enterprises around the service transformation agenda, helping them deliver more contracts in public service markets’. 5. An ‘ecosystem of support’ is being designed alongside this Fund, building on existing support that the University of Northampton and UnLtd already provide to social enterprises. 6. SIB will also invest in this Fund, and submit an application to BSC for further investment. Northamptonshire Impact Fund
  18. 18. ANNEXES Case studies 1.Key Fund 2.CDFI 2 3.CDFI 3 4.Kent Big Society Fund 5.Communities Investment Fund, Wales
  19. 19. Annex 4 Kent Big Society Fund – case study Place specific issues?  Kent is a large and diverse county: • Rural and urban communities. • Pockets of deprivation. • Limited social enterprise presence. • Linked to broader KCC support for enterprise. Background  Kent County Council (KCC) established a Big Society Fund in January 2012, to provide: • Support to transition grant dependent social enterprises towards sustainability. • A mix of soft loan and grant support. • £3 million investment over 3 years. • Create jobs and social value in the area. Fund details  Managed by the local Community Foundation. 1 FTE managing process.  Key Fund support (due diligence on applications, use of docs /processes).  No demand yet to divert HNWI money to this: they are interested in thematic areas.  No close date to Fund. Profiled as 5 year scenario based on current experience. Financials  £350k invested to date.  £1.7 million worth of specific interest.  Provides soft loans of £10k - £100k.  Grant element of up to 10%, if necessary.  Start ups receive more intensive support.  Loans up to 5 years, repayment holidays.  Flat 5% fixed interest on loans.  4% management fee immediate on all loans.  4% fund management fee from KCC.
  20. 20. Annex 5 Communities Investment Fund, Wales – case study Place specific issues?  Covers the West Wales and the Valleys area: • Receives Convergence funding. • Mix of Rural and Urban deprivation. • Isolated communities with poor infrastructure. Background  Wales Council for Voluntary Action (WCVA), created Communities Investment Fund (CIF) to provide:  Patient capital loans to SSOs in Wales in 2006.  Some grant available to make SSOs investment ready.  Target to create jobs and social impact. Fund details  Managed by WCVA.  Independent Credit Committee review all applications.  Using ERDF investment and recycling into further investments.  Current allocations to be made by Mar ’14.  Close working with Welsh Government for successor fund post 2014. Financials  Over £4m worth of investments approved.  Provides loans of £20k - £250k.  Work closely with support providers to provide wrap around support.  Loans up to 25 years, repayment holidays.  Flat 6% fixed interest on loans.  No additional fees or penalties.  Repayments to date c £1.5m.