Investments made by the £145m Futurebuilders England fund have so far lost an average of 3 per cent of their initial value – but this performance is "more positive than might otherwise be expected", according to an independent report on the fund, published today.
A Tale of Two Funds: the management and performance of Futurebuilders England, produced by the Boston Consulting Group, shows that between its establishment in 2004 and its closure in 2010, Futurebuilders made loans totalling £117m and gave out grants of £28m to a total of 369 organisations – of which 183 received loans, 35 a mix of grants and loans and the remaining 151 grants only.
The report says Futurebuilders was set up to "persuade the voluntary and community sector to make greater use of repayable finance" such that they could participate in government contracts, and this mission was "too bold and too broad in retrospect".
The fund has returned £47m to the Cabinet Office. Boston Consulting Group’s report says that about 20 per cent of that loan capital is now closed, having been written off or paid down, achieving an overall average internal rate of return of -3 per cent. "Given the pioneering nature of the fund, the fact that it was targeting organisations that were unused to accepting loan finance and that the period included a major financial shock, this performance is unarguably more positive than might otherwise be expected," the report says.
Richard Gutch, chief executive of the consortium that managed the fund from 2004 to 2008, says in the report that Futurebuilders suffered from being passed around different government departments – it was first overseen by HM Treasury, then by the Home Office and later by what was then the Office for the Third Sector, in the Cabinet Office.
"Over the first four years we had three different government departments and four different contract officers, so we had to keep explaining Futurebuilders to them, which was odd given that they were ultimately responsible for it," he says.
He says that a lack of understanding of the third sector among public service commissioners was the biggest challenge in the early days.
In its second phase, Futurebuilders enjoyed "a happier government relationship", but this contrasted with "increasing concerns being voiced from other players in the social investment market about the role of Futurebuilders", with some seeing Futurebuilders as a threat, the report says.
It says it is neither possible to prove nor to refute the suggestion that Futurebuilders undercut the market – it used significantly fewer grants in this second phase, but also might have put money into more "bankable" organisations that might have been more able to approach mainstream lenders.
The report contains six recommendations for social investment fund managers and designers: be clear on objectives from the outset; take care when blending grants and loans; keep products simple; develop clear investment criteria and stick to them; be transparent and engage other lenders; and measure social impact alongside financial impact.