We have an extra article that we were unable to include in the December newsletter, due for publication this coming weekend. This is an introduction to the Schroder BSC Social Impact Trust (SBSI).
SCHRODER BSC SOCIAL IMPACT TRUST (SBSI, 77p)
SBSI was launched in November 2020 to provide capital to social enterprises and charities addressing some of the UK’s biggest social challenges. That objective already marks it as being something really very different from most trusts, and this won’t be for everybody. It is a small trust, not entirely focused on pure investment returns and operating somewhat on the fringes of the sector, but it could be of interest to some investors wishing to invest for good social causes. Hermina Popa, managing director at Better Society Capital, the designated portfolio managers, introduced us to some of the nuances of this unusual trust.
Let’s get one issue out of the way first. There is of course one huge shadow looming over the trust, which is that the other socially-aware trust launched to help tackle homelessness is heading towards a terrible end. Home REIT is the number one disaster story of recent years, failing to achieve its aims and promises, losing the vast majority of investors’ money very rapidly, and perhaps subject to fraud along the way. This is an uncomfortable comparison for SBSI, which has had no such problems and seems to function well as intended. Home REIT’s problems seem very specific to its own structure, and Hermina says that it has been a disproportionate taint on the sector.
SBSI is a very different proposition. The trust raised a total of £86m from its IPO in 2020 and a secondary fundraising in 2021 for investment into proven social business models. One of very few trusts to seek the ‘sustainability impact’ tag under the new FCA Sustainability Disclosure Requirements along with Impax Environmental Markets (IEM, 376.75p) and Greencoat UK Wind (UKW, 125.55p) which has the ‘sustainability focus‘ label, SBSI is definitely striving to achieve social benefits alongside investment returns. It has used its assets in three principal ways – to provide debt and equity for social enterprises through secured lending and charity bonds; to invest in social and affordable housing for high need groups; and for social outcomes contracts that receive payments for delivering specific benefits. Across the portfolio, 71% of the trust’s income is government-backed, and Hermina says they work with well-established organisations including investment partners like Triodos Bank and Community Investment Fund.
This last point is perhaps most relevant when providing cash to social enterprises, where up-front cash is provided to charities and other organisations with capital requirements to buy properties or construct special facilities. This is typically done through funds or banking bonds, meaning the risk is shared and there are set repayment terms paid with government money and other funding. For high impact housing the partners are funds with long track records. The social outcomes contracts are interesting and worth explaining. Money is invested here to provide local services, and receipts are then received based on measurable outcomes that have saved money for the public purse. A social enterprise charity delivering cost-effective care in the community, for example, can save on future NHS costs. Hermina talked about a healthcare project providing education and early intervention for the long-term unwell, where payments are received for each person registered who does not subsequently use NHS services for help. The trust says it is not only helping people but also saving £9 for the government and local authorities for every £1 spent. The trust supports projects right across the UK, and interested investors can look for local ones on the ‘impact map’ on the trust’s website, which provides a detailed breakdown.
These investments do receive a return, and one that should not be correlated with other assets. The idea is to produce government-backed revenue streams that are resilient to macroeconomic changes, with two-thirds of revenues inflation-linked and more than 80% asset-backed. Since inception – in quite difficult conditions – the trust has made a NAV total return of +10.2%, and in the full year to 30th June the NAV total return was a modest 1.5%. The trust is expecting to pay a fully covered dividend of 2.94p per share (up from 2.3p last year), implying a yield of 3.6%. We don’t think investors should expect market-leading returns here, and there is always likely to be an upper bound, but SBSI does offer something genuinely different to investors seeking a middle path between altruism and profit-seeking. In common with the rest of the broad investment trust sector, SBSI has seen its valuation weaken and has fallen to a discount. The 30th June NAV per share was 104.1p, implying a 26% discount at the current share price.
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