How much does Big Society Capital cost?
Big Society Capital (BSC) chief executive Cliff Prior faced his first public grilling this week since landing the top job seven months ago.
At BSC’s inaugural "Town Hall" event on 2 November, Prior took to the lectern to deliver some key figures about the organisation and to answer questions from the audience.
BSC launched the Open Conversation on Transparency initiative last year to invite views from its stakeholders. Following on from that, the Town Hall event is intended to be an annual open meeting giving anyone the opportunity to ask the board members and senior managers questions about BSC’s strategy and operations.
BSC now has £793m available to charities and social enterprises, £289m of which is from its own funds and £505m from co-investors. Money that has reached social ventures to date (as of the third quarter of 2016) is £286m.
If we reduce the cost of capital it would be lovely for the charities and social enterprises but there would be a lot less money available
The first question that Prior had to answer was about the cost of capital – a topic that was discussed in depth by the Lord's Select Committee on Charities at the end of October. He explained that BSC needed to charge 4% to social investment finance intermediaries in order to remain sustainable.
On the cost of capital, Prior explained: “There s a balance between the low cost of capital that charities and social enterprises need and the higher cost of capital to draw in co-investors. At the moment we’re finding it equally difficult to do both.
“If we reduce the cost of capital it would be lovely for the charities and social enterprises but there would be a lot less money available because we wouldn’t be able to draw in the co-investors.”
Prior was further prompted to explain the cost of the market champion role that BSC performs, which the social investment finance intermediaries pay for through that 4% charge for loans.
BSC’s expenses “are around 1% of the capital that we have”, said Prior. So the market champion role cost half of that, he explained.
He said: “0.5% is effectively being put on the cost of capital. Is there any other source of funding that could fund either us or anybody else to do it? I don’t think there’s any doubt at all at the moment that a market champion is really important and really necessary.”
Prior was later asked if investors were seeing enough investible propositions. He answered that it differed depending which sector the social organisation was working in. He added: “With many social organisations the margin is just tiny.”
Embellishing on this, he related sitting with a number people from large charities at an event who had let him know their average margin on the year was 0.75%. In particular, he emphasised “government procurement leaves organisations with next to nothing”.
Photo credit: Franck Blais