A new social investment fund has been launched which allows tax-efficient investment in social enterprises that are helping to tackle poverty.
The fund is developed and run by Resonance, an investment company that works with social enterprises and is sponsored by UBS Wealth Management.
The fund, which UBS believes to be the first of its kind, aims to offer social investment tax relief (SITR) – a tax break introduced by the government in 2014 to encourage private investors to fund social services and community projects at a time when local government spending is being reduced.
The fund will target a post-tax return of approximately 8 per cent and will invest in a number of social enterprises in Bristol, focusing on issues such as access to the job market or affordable accommodation. Much of this funding will be in the form of loans.
The minimum investment is £10,000 and the fund is open to sophisticated clients as well as IFAs who have a relationship with UBS Wealth Management Investment will tie up their money for six years. The fund carries an upfront fee of 3 per cent and ongoing charges of 2.5 per cent in the first year and 1.5 per cent pa thereafter.
Resonance plans to expand SITR funds by raising £30m across various other UK cities, with the next planned in Manchester. But any expansion depends on the removal of an EU cap which effectively limits SITR investment to £275,000 for each organisation.
Comment:
With the majority of funds investing to maximise profits, a social investment fund is like a breath of fresh air. The fund shows ways in which private sector investors can help social business tackle problems such as inequality and poverty in various cities.
There are not many social funds active in the market at the moment with KPMG data identifying just 37 social and solidarity funds across Europe in 2014.
The fund meets the needs of financial advisers whose clients wants to access social impact investing and provides its investors attractive target return.
According to Resonance, the tax relief on these funds is the key to the development. This helps in driving down the cost of the capital for social enterprises who need funding to expand their projects.
It also reduces the risk for investors since they would receive 30 per cent of their return up front through the tax relief. However, the biggest hurdle in their way is the EU cap limiting investments to £275,000 for each individual organisation.
The UK government has applied to the EU to increase this amount to £5m a year, with a cumulative maximum of £15m. An approval is expected later this year.
