All new markets take time to evolve and mature. There are constantly new suppliers entering and leaving the field, along with waves of innovation occurring around products and services. The social investment market is no different and NPC has been observing and contributing to its development since the beginning.
We are encouraged by the growth of the social investment market. In the UK, the market was estimated to be worth over £2.3bn as of the end of 2017, an increase of 50% from 2015 and spread across 4,000 transactions. But despite this growth, the market is still not fully functioning—amongst other issues, available financing options are often too expensive for charities and social enterprises (VCSEs), there are significant knowledge and capacity gaps and the market is not as diverse as it could be. This is not surprising in such early days of a market—it’s not going to perfect from day one.
The Connect Fund was set up in 2017 to improve the social investment market in England—as a partnership between the Barrow Cadbury Trust and the Access Foundation. The fund has carefully identified its role in the ecosystem—what it can and can’t influence—and focuses specifically on strengthening the infrastructure—for example developing shared tools and resources and improving connections and linkages.
Through its provision of finance and support to social investment intermediaries, such as Key Fund or Big Issue Invest, and voluntary sector infrastructure organisations, such as Community Action Suffolk or Disability Rights UK, the Connect Fund promotes collaboration, champions impact and convenes new and existing voices.
For example, the Fund has invested in Singlify—affordable software management for the social investment sector, allowing social investment funds to better manage investment portfolios. And it has supported various regional membership organisations, such as a grant to Medway Voluntary Action to create a social investment champion programme, training local sector leaders to act as advocates and mentors for small local VCSEs wanting to explore and access social investment.
Two years after launch, with £2.2m in grants and investments disbursed to 52 projects (out of an overall £6m commitment), the Fund asked NPC to assess the delivery and progress of its programme to date, hear from grantees on what is working well and understand how it could maximise its impact over the lifetime of the fund. It’s too early for a systematic evaluation of the Fund, but we have published an interim learning report.
Although it’s early days, we found the Fund is making great progress. It is particularly valued by its grantees for its approach—flexible funding, a supportive team and encouraging collaboration and connections between grantees.
And it is contributing towards important outcomes to strengthen the market. The extent of this contribution is clearly harder to assess—what is the Connect Fund’s specific role in, for example, increasing diversity within the market or building trust between VCSEs and social investors? But we are confident, through surveys and conversations with grantees, that the Connect Fund has played a role in the headway being made. Among other things, VCSE infrastructure organisations have greater knowledge and capacity to support their members around social investment than 18 months ago. ‘Cold spots’ of social investment have been targeted—by region, demographic and sector. And 241 new networks, collaborations or partnerships have been established through the fund.
That being said, the market still has numerous issues that need addressing, most of which relate directly to front-line VCSEs and therefore are harder for the Connect Fund to influence. But areas highlighted by grantees that fall within the Fund’s remit include making more face-to-face connections between organisations, continuing its mission to increase diversity, and working closely with investors around language, terminology and simplifying investment.
More detail on the progress made to date and remaining challenges for the Fund are highlighted within the learning report. We’re excited to see the Fund, in partnership with Access, embed these learnings in the next iteration of its funding and continue its vital role in strengthening the market.
NPC’s work with the Connect Fund sits within our increasing focus on social investment and impact investing—where client work ranges from assessing the impact of multi-asset investment portfolios, developing impact measurement frameworks, conducting pre-investment impact due diligence or bespoke research and providing strategy advice for foundations and investors.
Among all the rush and clamour around the exciting field of impact investment, how do we ensure that investments provide social impact as well as financial returns? Plum Lomax shares some preliminary outputs of new NPC research.
How the KL Felicitas Foundation's impact investing portfolio balances social impact with financial return.
U2's Bono and a private equity firm seem like an unlikely pair to solve the question of impact measurement. Nevertheless, they are having a go. What pitfalls do they need to avoid?