Schroder BSC Social Impact 26 September 2023

Schroder BSC Social Impact (SBSI) is managed by the team at Big Society Capital (BSC) who invest in projects that will deliver a meaningful impact to the most disadvantaged members of society (see ESG). In doing so, the managers also aim to generate financial returns for shareholders through capital growth and a modest dividend. These projects will be diversified through different stages of development and across different asset classes which includes co-investments, secondary investments into existing projects and other closed funds in private markets (see Portfolio).

Recently, the managers have been completing some follow-on investments as their projects have continued to roll out. This has especially been the case in the high impact housing area which has seen developments ahead of schedule. There have also been some small changes to the allocations allowed within some of the investment areas to provide the managers with more flexibility. Furthermore, there has been a notable realisation in the portfolio which has provided a crucial data point for the NAV (see Performance). The social housing sector has experienced some challenging headlines over the past year, though the managers believe their actions have demonstrated the resilience of impact investing as an asset class and their portfolio.

As a result of the challenging backdrop, the shares have fallen to a wide Discount, relative to the trust’s history although the board have been active in managing this. They have used cash from the aforementioned realisation to buy back shares which they believe indicates confidence in the NAV. They remain confident in the counterparties of their assets and don’t believe they are exposed to the issues seen elsewhere.

We believe SBSI offers investors an opportunity to access a unique portfolio of private assets, selected by a specialist team. These assets offer investors the opportunity to fund the provision of vital social infrastructure and services that can provide a meaningful impact on the lives of those otherwise underserved, whilst aiming to generate a robust financial return for doing so, which is likely to provide significant diversification benefits for portfolios. As such, we believe SBSI appeals to not only socially conscious investors but as an alternative asset class for all.

Whilst this investment area has attracted plenty of challenging headlines over the past year, in particular with regard to social housing, we believe SBSI has been largely unaffected by these thanks to the managers’ expertise and a focus on high quality counterparties. The outcome of this approach was best demonstrated by a realisation earlier this year at an IRR above the trust’s target return, showing investors that SBSI’s approach is producing resilient results (see Performance).

Despite this, SBSI’s shares have slipped to a c. 11% Discount which is wide versus its own history. We believe this could be seen as an opportunity for long-term investors, as not only are they able to access the asset class below its NAV, but the board have signalled their belief that the discount is unjustified through the start of a buyback programme which could provide a near-term catalyst for the discount to narrow.