Two of Europe's oldest institutions, Berenberg and LGT Group, are combining to launch the first closed-ended fund to invest solely in social impact investments in the UK.
Two of Europe’s oldest institutions, Berenberg and LGT Group, are combining to launch the first closed-ended fund to invest solely in social impact investments in the UK.
The fund is looking to raise about £30m, and to date has received cornerstone commitment of £10m from Big Society Capital, the business funded by assets from dormant bank accounts in the UK, and additionally has pledges for over £2m from wealth managers.
The fund, Impact Ventures UK will focus on investments that create a positive social impact in the UK and they will be selected by LGT Venture Philanthropy, which has a five year track record of identifying, investing and growing social impact businesses.
Over this period, LGT Venture Philanthropy has committed funds with a value of over $16m in growth capital into over 25 enterprises across 5 regions that have had a positive impact on over 5 million lives cumulatively.
Investments in UK social enterprises aim to generate an IRR of 7% per annum net of fees and expenses, with investment given through a mixture of debt, equity and mentoring expertise and ranging in size from £500,000 to £5m.
The fund will focus on a number of areas of opportunity which include employability, education and child poverty, social housing and property, and rehabilitation.
LGT Venture Philanthropy and Berenberg point to the fact that 1 in 3 vacancies in the UK is caused by skills shortages, the country ranks 19th in Europe for adults who have completed upper secondary education, 1.8 million families on are the social housing waiting lists, and 1 in 4 criminals reoffend within a year.
The fund is registered as a Luxembourg-based SICAV SIF, jointly sponsored by Berenberg, a partnership with unlimited liability founded in 1590, and LGT Venture Philanthropy, which was formed in 2007 and is the impact investment arm of LGT Group. LGT Group is the largest privately held private banking and asset management group in Europe to be run entirely as a family business with assets of over CHF100bn under management (as at December 2012). The family of the Princely House of Liechtenstein has been in charge of LGT Group for over ninety years.
The fund will have an initial ten year term with two possible one year extensions.
Oliver Karius, a partner at LGT Venture Philanthropy, said the fund aims to invest in those businesses which are seeking to create profitable solutions in the key social themes it has identified.
He said businesses will be judged on the ‘depth of social impact’ and the fund will aim to fill the ‘missing middle funding gap’ providing growth capital where there is a need for investment of between £500,000 and £5m.
Funding that will go in, typically will be around 70% through debt and 30% through equity, and there will be no leverage.
Richard Brass, a director at Berenberg, said the businesses the fund will look at have the ability to create innovative solutions to social problems as well as achieving a financial return.
He said: ‘Over the last few years in the UK something intriguing and potentially game changing has been going on in business. Companies, customers and charities are aligning enterprise, markets and positive social and environmental impact. This social innovation can lead to business models to compete with their conventional for profit peers but it needs smart and patient capital and appropriate mentoring.”
Oliver Karius said the fund will consider businesses with scaleable business models that can achieve wider impact across the UK. These can include successful solutions from emerging or developing markets in health and education in countries like India or Africa which could work in the UK.
He added: ‘The fund and the social impact sector appeals to investors who would like to combine achieving social impact with target financial returns of 7%. Through the fund, investors will contribute to build social enterprises and support social change in the UK.’
The minimum investment is £250,000 and the fund is suitable for well-informed private investors or institutional investors.
The management fees are 2.75% per annum for assets up to £30m, reducing on a sliding scale to 2.25% when the fund gets over £50m. All the figures are based on committed capital during the investment period which is estimated to be 3-6 years, and then on invested capital thereafter. There are no carry fees.
The fund has an independent investment committee which includes Richard Brass, and Alexander Leeb, chairman of the LGT VP Foundations. The committee also features Nick Jenkins the founder of greetings card business Moonpig.com, enterprise fellow of the Prince’s Trust and global board member of ARK (Absolute Return for Kids), Liam Black, a co-founder of Wavelength, a global network bringing together business leaders and social innovators, and Susannah Nicklin, director of Pantheon International Participations PLC and former fellow of Bridges Ventures.
Liam Black is also the former CEO of Fifteen which, with Jamie Oliver, he grew into a global brand.