The Growth Fund focuses on filling a well evidenced gap in the social investment market, for small scale unsecured simple debt finance. Access provides a blend of grant and loan, allowing social lenders to overcome the challenges which had stopped this sort of finance being available previously: namely having the wrong tolerance for risk, uneconomic fund sizes, and unattractive products for charities and social enterprises.
The Growth Fund opened for expressions of interest and applications from organisations who want to run a new sort loan fund for charities and social enterprises in May 2015. We planned to make investments over a three year period. We now expect to close the expression of interest window for applicants to the Growth Fund in December this year.
Since May 2015 we have had 61 expressions of interest (EOIs) from prospective lending managers. Nine funds are now live and we have made offers for a further three which will launch in the Autumn.
We are in the very early days of seeing the evidence of the Growth Fund on the ground. We are pleased that a wide range of organisations want to run funds, from experienced social investors like Resonance, Key Fund, First Ark and Big Issue Invest, to new entrants like Community Foundations, and specialist infrastructure organisations like Homeless Link, and a number of charity and social enterprise recipient case studies are starting to emerge.
We are also seeing smaller loans which the sector has been crying out for being made through the fund all over the country and at scale. Of 72 loans approved to charities and social enterprises by the end of June, 52 of which were already deployed by that date, the average loan size was £67,000. See our latest dashboard for the data in the portfolio as at end of June.
These funds will make loans to charities and social enterprises typically over three to four years. This means that the peak lending activity from the Growth Fund’s funds will be in 2019. The purple line of the graph below shows the current and forecast trends of the funds already live and the orange line is an estimate of the Growth Fund from now until when fully committed (based on a pipeline stage probability weighting on the entire current pipeline).
Back at the wholesale level, we measure our journey to invest the full Growth Fund into intermediaries by how much of the £22.5m grant has been committed. This is the precious resource. It is always less than 50% in each fund, and Big Society Capital have indicated that they will provide more debt if needed to match the grant from the Big Lottery Fund.
We currently have just under £6.5m (29%) of the grant left to commit.
The current pipeline shows 11 organisations who have submitted eligible EoIs and whom we have invited to apply, or with whom we are currently undertaking due diligence and who will come back for a final investment decision at a forthcoming investment committee meeting.
Based on our experience so far, we know that not all of these applicants will make it to our investment committee. We also want to ensure that any other organisation which might want to engage with the Growth Fund, and has the potential to move quickly, has the opportunity to do so. (You can view our application guidance here and our EOI form here.)
Therefore we envisage closing the expression of interest process for the Growth Fund in December.
Fully investing the Growth Fund is only the start of our task. We will have a portfolio of around 15 or so new social investment funds to manage, with the Growth Fund’s peak deployment scheduled for 2019. We want to build a strong peer community of social investors who can address common challenges together. Our commitment to learning places a very high priority on how we share the lessons from the innovative structure of the Growth Fund so that the need for subsidy is better understood and other funders can see the impact of this work. You can read more about our approach to learning on the learning and research section of our website.
Bell image credit: Jacob Earl