Access is dedicated to improving the financial landscape for charities and social enterprises. Our approach involves combining grants with loans to ensure that smaller organisations, particularly those operating in underserved areas or communities, have access to the financial resources they need.

As part of our commitment, we actively share the technical insights we gather, especially concerning the impact and role of our grant subsidies within specific funding initiatives. By doing so, we aim to enhance transparency and deepen the collective understanding of the social investment market.

This knowledge sharing helps us, our partners, and other stakeholders to better appreciate the nuances and benefits of blended finance solutions, ultimately strengthening the capacity and sustainability of the social sector.

Previously, we published two reports on the “Use of Subsidy” in establishing the Growth Fund portfolio (these reports can be found here and here), funded by The National Lottery Community Fund (TNLCF).  

In 2024, we plan to expand on this work by publishing a series of reports that dive into how subsidy from the Dormant Assets Scheme is being applied across various funding programmes we’ve developed.

This blog introduces the first of these reports, expanding on our learning from the previous blog on the Flexible Finance programme. Future reports will cover the Enterprise Growth for Communities (EGC) and revisit the Growth Fund, alongside a comprehensive analysis of our learnings across these programmes and others on the effective application of subsidy.

What to know before diving into the report

1. Target Audience: This report is technical and designed for readers with a fundamental understanding of social investment and blended finance. While we have aimed to present the information clearly and minimise jargon, a basic grasp of these concepts will enhance your ability to fully engage with the content.
2. Scope of the Report: The focus of this report is on the technical design and construction of funds supported by the Flexible Finance subsidy. It provides a detailed look at how these funds are structured but does not cover their performance at this stage. This approach aligns with the methodology used in our earlier Growth Fund Use of Subsidy reports where we similarly reported on the technical setup and use of the subsidy, rather than waiting for the funds to be fully deployed and assessing their overall performance.

Key Insights from the Report

1. Fund Composition:

• Diverse Portfolio: Our nine supported funds showcase a dynamic mix of investment approaches:
  • Three equity-only funds
  • Four debt-only funds
  • Two mixed product funds

1. Fund Establishment Timeline:

• Establishing a new fund under Flexible Finance proved a lengthy process, typically taking around two years from design to product offering. This was longer than we have seen on other programmes, which have had more straightforward mandates and sources of matching capital. Creating more innovative and bespoke funds has been beneficial for the market, but has brought complexities and taken more time and cost.
• The most significant delays are due to raising matching finance and finalising legal agreements, with a median delay of eight months for these activities. Moving forward, Access is working more actively with co-investors to help streamline these processes and reduce delays.

2. Investment Term:

• The median expected investment term is 7.8 years, with significant variation between funds. Equity-only funds have a median term of 11 years, while debt-based funds average around 6.3 years. This variability highlights the need for patience and flexibility, particularly for smaller investments. These longer terms reflect the intention of the Flexible Finance programme to create patient products, which often translates into extended repayment periods to align with the programme’s goals.

3. Grant Subsidy Allocation:

• Debt funds generally required a higher proportion of grant subsidy compared to equity funds. However, due to the fund construction (including recycling), the projected deployment per £ of subsidy is expected to be similar across both types of funds.

4. Co Investment:

• Equity funds tended to attract capital from more novel sources, while debt funds primarily secured capital from investors already experienced in social investment.

5. Product Size:

• The Flexible Finance subsidy has facilitated the development of products similar in size to those in other blended finance programmes that Access has been involved in. The anticipated size of these products ranges from £50k to £250k across different funds, with a median size of £126k. This pattern highlights that, despite the varied mandates of different programmes, the investment size most frequently sought in the market remains consistent.

Final thoughts

This Use of Subsidy report provides valuable insights into the technical construction of investment funds supported by subsidies. It highlights the challenges and opportunities in designing these funds and sets the stage for future discussions on the application of subsidies in social investment. As we continue to explore and document our findings, we aim to contribute to the broader understanding and effectiveness of subsidy use in this field.

Stay tuned for upcoming reports on the Enterprise Growth for Communities and the Growth Fund, where we will share more detailed analyses and learnings. Through these efforts, we hope to enhance the impact of social investment and support the development of sustainable funding models.