Better Society Capital in the red for first time since 2019 – new financial report

The UK’s social investment wholesaler reports losses in 2023, but CEO says he’s taking a long-term view.

Better Society Capital, the UK’s social investment wholesaler, reported losses of £6m in 2023 – the first time the investor has gone into negative territory since 2019, its latest financial report, published today, reveals.

The CEO also highlighted challenges in finding co-investors during the year, with a reduction in new investments compared with 2022.

The organisation had already seen a major drop in profits in 2022 – although not a loss – as the investor only made £4.1m, down from £16.1m the year before.

The report attributes the loss during the 2023 calendar year to a “difficult economic environment”, which Better Society Capital already blamed for the fall in profits in 2022.

Stephen Muers - Big Society CapitalSpeaking to Pioneers Post, Stephen Muers (pictured), CEO of Better Society Capital, said that while he wouldn’t want to see these kinds of results repeated over several years, he did not believe the 2023 loss would affect the viability of the organisation.

He added: “I think we're in quite a privileged position, compared to a lot of organisations, that we were set up to be able to take a long-term view and to deal with short-term ups and downs. 

“We've always focused on our turnover over a five-year period – so one or two years of profits bumping up and down doesn't really affect our long-term viability.”

Better Society Capital receives capital from dormant assets – unclaimed assets held in bank accounts and other securities, where the owner cannot be found – and invests it in social impact funds operating in four different areas: social housing, social lending (loans made to social enterprises), impact ventures (startups) and social outcomes contracts. It seeks to mobilise capital from other investors alongside its own.

Better Society Capital keeps the money that isn’t committed to social investments in its treasury portfolio, in the form of easy-access sustainable investments to generate a financial return. 

BSC balance sheet chart 2017 to 2023

According to the report, most of the losses in 2023 were due to the poor performance of the wholesaler’s social impact investment portfolio, which generated a loss of £4.9m (-1.3% of the total portfolio) – a sharp drop from the year before, where the portfolio created a positive return of £10.7m (2.9% of the total portfolio). 

This is due to valuation losses, where a Better Society Capital investee loses value, meaning the capital invested is worth less than it was at the time of investment.

We've always focused on our turnover over a five-year period – so one or two years of profits bumping up and down doesn't really affect our long-term viability

Social housing funds suffered from wider economic circumstances, including high inflation and stagnant real-estate prices, according to the report. Difficulties finding investors had hit social lending fund managers, especially newer ones. Meanwhile, social impact startups had struggled to maintain their valuations, including some with business models that had been affected by a difficult economy.

However, Muers pointed out that it was important to look at the longer term. For social housing, for example, while 2023 was poor – as the returns from property investments were low due to stagnant real estate prices – demand for housing, and social housing especially, would rocket in the longer term, as homelessness rates were increasing like never before, he said.

Offsetting the social investment portfolio’s poor performance were higher returns from Better Society Capital’s treasury portfolio, which reached £9.2m in 2023, £6.7m higher than 2022,  in particular thanks to a rise in interest rates. 

But administrative costs increased – reaching £11.4m in 2023, up 15% compared with the year before. This was due to high inflation and the related need to increase employee wages, as well as the creation of new jobs within the company, according to the report. 

New commitments

Since its launch in 2012, Better Society Capital has invested £927m from its own funds, mobilising £2.6bn from co-investors.

But the report reveals finding co-investors was a major challenge last year. Better Society Capital made £44m worth of new investments in 2023, compared with £68m the year before – in part due to the difficulty of finding investors ready to commit their capital alongside the wholesaler. 

A lot of investors were pulling back last year

“A lot of investors – whether that's wealth managers, local public pension funds, foundations, or high level individuals – were pulling back last year,” Muers said. 

“We had problems fundraising for a lot of [social investment] funds we were interested in supporting – so those deals didn’t close, or fund managers said, actually, now is not the time, we're going to pause on raising this new fund, because it's uncertain.”

Muers added that momentum seemed to be picking up in the first half of 2024, as the UK economy showed signs of recovery. “We've got quite a lot in our pipeline at the moment – obviously, we don’t know yet whether all those things will come through. But it feels like things have turned around a bit.”

Top image: Freepik.

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