Episode Transcript
Katya: Welcome to this episode of the Be Inspired series of interviews presented by the London Stock Exchange. I'm Katya Gorbatiouk, Head of Investment Funds in Capital Markets, and it's an honor for me to be speaking to Jeremy Rogers, Chief Investment Officer of Big Society Capital and Portfolio Manager of the Schroeders BSC Social Impact Trust. Listed at the London Stock Exchange, the investment fund provides investors with opportunities in private markets that are aiming to generate sustainable returns, but tackle social challenges and achieve high social impact. Jeremy, I would like to start with your background, with your vision of your personal purpose in life and how it drove you to this current role.
Jeremy: Good morning and great to be here with you. So I guess like many people at Big Society Capital, I have through my family some lived experience, if you like, of the social issues that we are aiming to tackle. And then back in the late nineties, I joined JP Morgan on their trading floor. I set up their European high yield and trading business, which I then ran for 10 years, helping it to become the market leader. And really about 15 years ago, I then was looking to, I guess, take some of those investing skills and try to put them to work in areas where really investment can be an important part of the solution.
Katya: What does Big Society Capital do and why did you decide to team up with Schroders around this big objective?
Jeremy: So Big Society Capital is a specialist social impact investor focused on the UK. We were founded 11 years ago by Sir Ronald Cohen, who is also the founder of Apax, the private equity fund. The partnership with Schroder's really came about from investors being interested in being able to access what we do, which is mostly in, in private markets through a listed product.
Katya: What are the challenges you are seeking to tackle? What's the impact that you're seeking to make and what's your strategy to do so?
Jeremy: So the social impact trust, I guess, is looking for those areas which can deliver, as you mentioned, really good risk adjusted return to investors alongside high social impact, really focused in the UK, on benefiting more disadvantaged and vulnerable groups. So, let me give some examples perhaps. So domestic abuse in the UK costs us over 50 billion a year, and the challenge there really is a shortage of refuge accommodation. So we have an investment in how Hull Women's Network, where we invest in properties that can provide that service with revenue to investors coming from government payments and also appreciation in the properties. Another example that perhaps is very, very topical is that of fuel poverty. As you're probably aware, the UK has the worst insulated houses in Europe, which also coincides with this really high period of energy prices we're seeing. Our investment AgilityEco works with low income households to do energy efficient measures, retrofits, and what it really does is it brings together all of the different services that a need alongside accessing the government revenue streams that can benefit those groups. A final example would be children on the edge of care. So if you end up in care, it has really quite significant implications for your life. Chances five times more likely to interact with the criminal justice system, employment challenges, etc. The opportunity, if you like, is an increasing amount of interventions exist that help people to stay with their families, and we invest in organizations that provide those with our revenue then coming from a portion of the savings that come back to government as a result of those interventions
Kaia: How do you balance the priorities of your investors? How do you balance their desire to make a return with your high social impact aspirations?
Jeremy: So I guess for the areas that we're investing, impact really is a source of value. It drives returns, but it also reduced risk. So we don't really see that trade off. We have a wide range of investors. They may be pension funds, endowments, family offices, individuals, and for all of them, yes, the impact is important, but actually the returns that we provide are equally important. The benefit of many of our investments is they tend to behave a little bit differently. There are organizations that have had revenue that's been historically resilient through the cycle, so they can provide some diversification as well to those portfolios.
Katya: I would like to go into your investor engagement. How do you conduct a dialogue with your investors?
Jeremy: We've definitely learned with a listed product how important that communication is. We do all the stuff that you would expect: quarterly reporting, annual reports, regular meetings with investors, interviews like this. There are a few differentiators for our product and things that we've learned as a result. So we published this year our inaugural impact report that shows that our investments are benefiting over 160,000 individuals of which 90% are disadvantaged and vulnerable. It really goes into some detail of both case studies. We think stories actually often tell the story of this trust best, but also the impact practice that is so integral to our investments. And one thing we've definitely learned is that many of our investors who themselves are working out where impact can add value to their portfolios, really value the conversation on that.
Another key learning area there is the power of local. So we've done investor surveys where you ask investors which impact is most interesting to them, and perhaps surprisingly, it's not a particular issue. It's not the environment, it's not housing, it's not social care. It's something that is local to them, especially given how we're all living now. If you go to the trust website, there's an interactive map there where our investors can really zoom into their local area and they can see the handful of investments that are local to them and delivering that impact in their local air. And we've had fantastic feedback from that.
Katya: Your circle of stakeholders is so broad because your activities impact so many people. How do you engage with your stakeholders and what are some of the basic lessons you've learned from this engagement?
Jeremy: No, you're right. That's a really important thing for us. So beyond investors, the other two crucial set of stakeholders are all different parts of government, but also the charity and social enterprise sector. So we have a group here who solely focuses on that interaction with government, looking at potential policies government could put in place where investment could benefit. We have another group that focuses purely on charities and social enterprises, engages with them again about where investment can be useful. We actually run an information portal called Good Finance, which helps charities and social enterprises with their finance options. That's had over I think 300,000 unique users there. And really the combination of those gives us a pretty differentiated insight actually into both the opportunities in the market, but also crucially some of the areas of risk.
Katya: A board of directors, it can be a tremendous resource. How do you engage with the board and what input are you seeking from them? What are the areas of expertise that you find particularly useful for you?
Jeremy: That's a good question and I think in a listed product that board is particularly important. And one of the nice things about working in impact investing is we're able to attract fantastic people. And actually our board is a really good example of that. So they have expertise across private market investing, investment trust, broader asset management, impact management, that they're absolutely helpful in all the areas that you would expect of reporting, really ensuring that, we get our overall approach right for our shareholders. The bit I've particularly appreciated actually is some of their engagement around the types of models we invest in portfolio construction and really making sure that we get that product market fit, if you like, of our investment activities for our shareholders.
Katya: I would like to talk about your growth aspirations. What are they and why should investors join you on this journey, particularly given today's uncertain times?
Jeremy: Yep, it definitely is an uncertain time. So our aspirations over the next few years are to grow the trust to 3-500 million. Now the opportunity set here is really significant. So our recent market sizing showed that the social impact investment market had grown almost tenfold over the last 10 years to 8 billion. I guess the interesting thing for investors investing in this area is, as I mentioned, these diversification elements. The organizations we invest in, they've delivered over multiple cycles. So we really focus on those organizations with long track records. The average track record of our investee is over 28 years. So they've seen political cycles, they've seen inflation come and go, come and come and go if you like. But crucially their revenue and their resilience through those periods, there are some historical proof points of how these investments can behave a little bit differently.
Katya: And finally, why have you chosen an exchange listed vehicle to do what you do, to do all these important activities and seek to make this important social impact? And why particularly London?
Jeremy: The reason for the listing, actually, many of our founding shareholders were looking to invest in high impact areas in the UK, often the best opportunities there are in private markets, and that was very challenging for them to do direct. What the listed structure enables, it enables that to be brought together in a diversified portfolio, really, that they couldn't access themselves often. And it brings that together in a simple security that they can buy and sell for their client portfolios. I mean, London is the natural choice for us, given the UK focus that we have, but much more than that, there's this thriving investment trust sector in the UK, which is really a global leader. And one thing we found is that we're in contact with many of our peer investment trusts. They've been doing this for longer than we have certainly in terms of running a listed vehicle, and we learn a lot from them actually in terms of how to do that most effectively. We also benefit a lot actually from the broader ecosystem in London. The different asset managers are here, the different law firms that are here. And also Schroders that is the platform that we sit on. We learn a lot actually from their trusts and the different skills they bring to what we do.
Katya: Thank you, Jeremy. What an inspiration to be talking to you about your vision for the role of capital and how you practice that vision every day. Thank you for watching this episode as part of the Be Inspired series of interviews with inspiring thought leaders. And please share it with your audiences. This episode will continue to live on Spark Live at the London Stock Exchange Issuer Services website.
