An innovative new social investment fund launches today in Bristol. The £5m ‘Resonance Bristol Social Investment Tax Relief (SITR) Fund’ by impact investment specialists Resonance is one of the first of its kind in the UK and enables sophisticated investors to invest in a tax efficient way in social enterprises that are helping to tackle poverty. Like all investments there are risks, but the fund offers exciting opportunities for attractive returns and targeted social impact.

The fund, developed and run by Resonance and sponsored by UBS Wealth Management, utilises new tax relief measures to incentivise investment in charities, community interest companies and community benefit societies on terms that work for them. It has targeted a post-tax Internal Rate of Return of approximately 8%[1] (overall rates of return may vary depending on the investor’s individual tax circumstances) and aims to invest in around a dozen social enterprises in the Bristol area, tackling issues such as access to the job market or access to affordable accommodation.

Daniel Brewer, Managing Director at Resonance said: “Today’s fund launch shows that private sector investors can empower social businesses to tackle problems of inequality in our cities. It’s good for investors, good for social enterprises and good for society at large”.

The fund is open to eligible investors from today (with a minimum investment level of £10k), and will be available shortly on the UBS Wealth Management platform, alongside other impact investments and comparable tax structures such as EIS and VCT funds. UBS Wealth Management clients as well as clients of IFAs, who may have a relationship with UBS, will soon have access to this product. In addition, Worthstone, leading research specialist on impact investment, has conducted independent due diligence on the fund for UBS and will shortly be making available an independent product review for IFA subscribers via its web-based platform.

This is potentially just the start. Resonance plans to grow £30m+ of SITR Funds in several other cities across the UK over the next 2-3 years to achieve similar social impact through investment. However the expansion is dependent on the removal of an EU cap which effectively limits SITR investment to £275,000 for each individual organisation – this can often be well below the level of funding they actually need. Removal of the EU cap would allow bigger deals from larger funds, enabling social enterprises to raise more investment. It is understood that if clearance is given, the cap could be raised to almost 20 times its current level.

Daniel Brewer added: “Today’s launch is exciting but we also want to go further, and the potential removal of the EU cap on investments is going to be a game changer that would allow social enterprises to access all the capital they need and, in due course, help replicate this further. Europe remains a big issue following the recent general election and an impending in-out referendum, and this is an early test for the new government to see if they can make our relationship with Europe work better for Britain.”

Jamie Broderick Head of UBS Wealth Management, UK said: “This fund is the first in the UK to truly utilise the benefits of Social Investment Tax Relief at scale, and it simultaneously drives down the cost of capital for social enterprises ready to grow. We are excited that the UBS Strategic Partner Portal for IFAs will be the ‘go-to’ place for IFAs and their clients to take advantage of this exciting opportunity, hopefully generating consistent returns while delivering a positive social impact in the UK.”

He added: “We join Resonance and others in hoping the EU lifts the cap and ensures SITR can be rolled out to others who can benefit across the country.”

Andy Street, a Bristol resident and Angel investor, who has committed to invest in the fund says: “For me, investing in the Resonance fund is a no-brainer – I respect the high level of integrity of the Resonance team, investment in the fund achieves a reasonable level of return thanks to the tax relief and, more importantly, it is helping to transform lives and communities across the city. In my view social investment can be part of any mixed portfolio and I hope more IFAs advise their clients to invest in opportunities such as this.”

Gavin Francis, Director at Worthstone commented: “This fund comes closer to meeting the needs of financial advisers whose clients want to access social impact investing than any other product has to date. It benefits from tax relief, is pseudo-pooled to help mitigate risk, and it offers an attractive target return. I believe its introduction – and the fact that a wealth manager of the scale and significance of UBS is recommending it, where suitable, to clients – will herald the arrival of social investment advice to retail investors in the UK.”

Risk Warning
The value of investments may fall as well as rise and you may not get back the original amount invested. It should be noted that past performance is not a reliable indication of future returns. Projections or forecasts are not a reliable indicator of future performance and may not materialise.

[1] Eligible Investors are individuals who qualify under FCA COBS 4 rules as either High Net Worth, Sophisticated or Restricted Investors. Target return of 8% is based on 30% income tax relief arising from investments over a 2 year period, and an assumed average interest rate of 2.9% during years 1-2 and 5.2% during years 3-6, with capital repayment between years 4-6. Post tax IRR is defined as including the 30% income tax relief from SITR but excluding other potential tax effects, such as income tax on interest payments and capital gains tax relief on any losses, which will vary according to the specific tax status of each investor. As an indication, on this basis the Post tax IRR is forecast at 8.5%, and taking into account these other potential tax effects would result in a forecast IRR of 7.8% for a standard rate tax payer and 7.1% for a higher rate tax payer. Chancellor George Osborne set out proposals to extend the SITR scheme, including raising the cap on investments, in his Autumn Statement in November 2014, and the decision about whether to give state aid clearance for this extension now rests with the EU’s competition commissioner Margrethe Vestager. The launch of the Bristol SITR fund follows a detailed 18 month pilot phase run by Resonance, the results of which were summarized in its report “A Social Investment Fund for Bristol”.