Since its launch in 2012, Big Society Capital has regularly been described as the ‘World’s First Social Investment Bank’.

While it is not literally a bank, the ‘financial institution’ is best known for providing funds for Social Investment Finance Intermediaries (SIFIs) to invest directly into charities and social enterprises.

Of the organisation’s four ‘founding principles’, restated in its 2014 strategy document the statement that: “We act as a wholesaler, deploying capital through social investment finance intermediaries (SIFIs), including organisations providing market infrastructure” is the only one that relates to a specific function.

With new CEO, Cliff Prior, poised to take up his role in March 2016 and growing interest in setting up similar institutions elsewhere in the world, it is worth considering the extent to which this principle is currently being fulfilled. As it stands, to what extent is it accurate to describe Big Society Capital (BSC) as a wholesaler?

There are (at least) two reasons for questioning the label. The first is that Oxford Dictionaries define ‘wholesale’ as: “The business of selling of goods in large quantities and at low prices, typically to be sold on by retailers at a profit”.

It’s not clear that the ‘wholesale’ finance BSC is offering to SIFIs unambiguously meets any of those three conditions. The first two are actively disputed, the third is as yet unproven.

While some BSC critics might put forward this point as a snarky jibe, there is actually a serious non-accusatory question behind it: Is it possible to wholesale social investment to SIFIs in big enough quantities at low enough prices to enable those SIFIs to make a profit?

It is however clearly true that BSC is at least attempting to do wholesaling as a part of its work so the second query is about the current prominence of that function compared to its other activities.

The opening to the recent blog post outlining BSC’s headline figures 2015 appears to actively downplay the importance of wholesaling role explaining:

“Before getting straight to the point, allow us a brief meander. As our theory of change hopefully illustrates, we are ultimately trying to achieve greater social impact for disadvantaged groups, using social investment as a tool. Our investment activities are one part of this – we take our market championing role at least as seriously. So our investment numbers for any one year are just one means to a much broader end.”

More interestingly, BSC’s first publication of ‘deal level data’ issued in December 2015 suggested that wholesaling may not necessarily be institution’s most important investment activity.

The spreadsheet, covering the period from the organisation’s launch until September 2015, provides a fascinating if complicated picture of what’s going on in the (government-backed portion of the) UK’s social investment market.

There are 282 deals but, as the introductory blog post notes, there is some overlap between the data, mostly arising because BSC is both an investor in funds and investor infrastructure organisations.

While the exact number of investments BSC had been involved in by September 2015 is not entirely clear, what is clear that the majority (183 or 65%) of the institution’s claimed interventions were not wholesale investments – made through SIFIs’ funds with BSC money – they were either direct investments by BSC or deals that happened as a result of BSC making direct investments.

Of the 282 deals:

• 107 were Charity Banks loans,
• 54 were deals arranged by Clearly So
• and 22 were direct investments – made up of 13 into Social Impact Bonds and 9 others (including direct investments into Charity Bank and Clearly So)

Social sector organisations benefitting from these deals are highly unlikely to care about the distinction. They are likely to be particularly uninterested in the fact that BSC’s investment in Charity Bank is not an investment in a fund but an equity investment that enables a social bank to lend.

And more generally these figures do not necessarily indicate that BSC is pursuing an incorrect strategy but they do reinforce questions raised by the Alternative Commission on Social Investment and many others about the relevance and long-term viability of a wholesale ‘social investment market’ made of up SIFIs and social investment funds.

A recent report by Social Enterprise UK’s Nick Temple for Access: The Foundation for Social Investment provides some of the most detailed, long-term evidence about demand for finance from social enterprises currently available – and highlights that the average investment sought is £70,000.

BSC-backed SIFIs generally offer investments of £200,000 or more. That’s not because they’re run by either bad or stupid people but because that’s the business model of fund-based investing. There are some organisations that do need this level of investment and many of those funds are already helping them.

We will also soon see the first Access-backed funds – with SIFIs being subsidised by funds to make smaller, riskier investments that they wouldn’t be able to make on a commercial basis but, alongside that, it seems likely that disintermediated approaches – including Community Shares and crowdfunded loans – may have more relevance to many social organisations. Flip Finance is looking to support the development of this part of the market through a project called DIY Social Investment.

In the short term at least, SIFIs and their funds definitely have a role to play in the landscape of investment in social good in the UK. What’s not clear is how big that role will be.

BSC are currently showing admirable flexibility both in emphasising their ‘market champion’ role and making direct investments in organisations that are important to UK social investment but are not investors of wholesale funds.

As the new CEO takes up his post, he will face the challenge (amongst others) of working how well the organisation’s supposed core activity as a wholesaler aligns with its social mission: ‘to build the social investment market in the UK’.