Big Society Capital
Big Society Capital names board, CEO and first £1m investment
29 July 2011 by Tim West .
'We are on the cusp of a revolution. The social sector now has the prospect of attracting funding in the UK to support social entrepreneurs, much as venture capital and private equity did to support business some three decades ago.'
Sir Ronald Cohen
There are few moments like this when something happens that can really change the world. We’ve all heard about a small charity or social enterprise sweeping away entrenched local social problems. But we have not seen a significant commitment to help social innovations grow and be implemented on the national stage until now.
Minister for the Cabinet Office Francis Maude
The big names behind the Big Society Bank claimed they were a step closer to creating a ‘revolution’ in social finance this week as they named two expert boards and their first £1m investment.
The institution has also unveiled a new brand – it is now officially named Big Society Capital, with the strapline ‘Finance in the service of society’, the word ‘bank’ having been vetoed by the Financial Services Authority (FSA).
It has also clarified the deal with the four banks who will put £200m of investment into the £600m pot, under the Merlin agreement with government.
And the government has revealed that it aims to revise investment guidance for foundations to make it easier for them to put some of the £100m funds they hold in the UK into social investment vehicles.
Although neither state aid approval from the European Commission or regulatory approval from the FSA has been finalised – both of which are needed before Big Society Capital can get its hands on the money – Minister for the Cabinet Office Francis Maude, who hosted this week’s announcement at 70 Whitehall, said he was confident that both were proceeding without the prospect of a problem.
Sir Ronald Cohen, the renowned venture capital and social investment pioneer, has agreed to serve as the unpaid, interim chair of Big Society Capital Limited until it is fully operational and its board has conducted a search for a more permanent chair.
As many had expected, Nick O’Donohoe, formerly Global Head of Research at JP Morgan, will take the helm as Big Society Capital’s first CEO.
The other board members are Dawn Austwick (Esmée Fairbairn Foundation), David Carrington (Independent Consultant and former Social Investment Task Force member), John Kingston (Association of Charitable Foundations), Geoff Mulgan (National Endowment for Science Technology and the Arts), Dai Powell (HCT Group), Lady Susan Rice (Lloyds Banking Group) and Danielle Walker Palmour (Friends Provident Foundation).
The Board of the Big Society Trust, responsible for ensuring the group stays true to its mission, has also been appointed. Members represent a wide spread of leaders in the social and financial sectors: Sir Richard Lambert (University of Warwick), Ian Davis (formerly McKinsey & Co), Baroness Pitkeathley (House of Lords), David Robinson (Community Links), Sir Stephen Bubb (CEO of ACEVO, in rotation every three years with NCVO), Peter Holbrook (CEO of Social Enterprise Coalition), Gareth Davies (Cabinet Office) and Sir Ronald Cohen.
Big Society Capital will be run independently from government with decisions around funding being made by an impartial investment committee. It will be using an estimated £400m in unclaimed assets left dormant in bank accounts for over 15 years and £200m from the UK’s largest high street banks.
Douglas Flint (Group Chairman, HSBC Holdings plc), Stephen Hester (Group Chief Executive, The Royal Bank of Scotland Group), Antonio Horta-Osorio (Group Chief Executive, Lloyds Banking Group plc), and Bob Diamond, Chief Executive, Barclays plc issued a joint statement saying they were ‘delighted to support the Government’s efforts to transform the UK social finance market’.
They said: ‘This is a ground breaking initiative with the potential to be the catalyst for creating a sustainable social finance model in the UK. This investment evidences our commitment to working with the team at Big Society Capital to make their vision of a sustainable social finance market a reality.’
The big four banks will commit to provide equity investment over four years to be drawn down alongside the dormant accounts monies as they are received. The banks will have rights to income proportional to their contribution to BSC's total capital and senior rights in the event of liquidation of the company. The Big Society Trust will control 80 % of the voting rights of BSC and the Merlin Banks 20%. The Banks will be nominating one representative to the Board of BSC. The Merlin Banks have also agreed to provide BSC with an interest-free loan to assist with its establishment.
Completion of a transaction is subject to various conditions including agreement on formal documentation, receipt of FSA authorisation and State Aid approval and approval of HM Government.
The first investment from dormant accounts has been agreed in principle for the Private Equity Foundation, an organisation whose mission it is to support disadvantaged young people into employment, education or training. The £1m is split into £500k in equity and £500k to underwrite other investment opportunities.
Minister for the Cabinet Office Francis Maude said: ‘There are few moments like this when something happens that can really change the world. We’ve all heard about a small charity or social enterprise sweeping away entrenched local social problems. But we have not seen a significant commitment to help social innovations grow and be implemented on the national stage until now.
‘Big Society Capital will undoubtedly change this and unlock the money that charities and social enterprises need to grow when a big opportunity comes along. This government is proud to support this achievement. I want to thank Sir Ronald Cohen and Nick O’Donohoe and everyone else, including the banks, who have made this a reality so quickly.’
Sir Ronald Cohen commented: ‘Today’s launch of Big Society Capital Group marks the culmination of ten years of thought and effort by many individuals and organisations. It is the first of a new kind of organisation devoted to providing finance in the interest of society. The depth and breadth of The Big Society Trust and Big Society Capital boards, combined with an anticipated £600m in initial funding will enable BSC to attract additional capital to the social sector from charitable foundations, institutional investors, companies and private individuals.
Sir Ronald said that innovations such as social impact bonds and a burgeoning array of organisations operating across the social sector ‘suggest that we are on the cusp of a revolution’.
He added: ‘The social sector now has the prospect of attracting funding in the UK to support social entrepreneurs, much as venture capital and private equity did to support business some three decades ago. We very much welcome the equity investment by the Merlin banks and a strategic relationship with them in developing the market for social investment in Britain.’
More announcements on social impact bonds (SIBs) are expected within the next few weeks – with up to four new ‘bonds’ bringing private investors, public and civil society organisations together in a payment-by-results model designed to change the way some of the most challenging social issues are financed. The first SIB is already in operation at Peterborough prison.
To support the early development of Big Society Capital, the Big Lottery Fund has set up an Investment Committee to make some initial investments. Applications for investment should be initially made to the Investment Committee. Details of the fund and application process can be found on the Big Fund website.
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