Showcasing where mayoral strategic priorities, scalable investment opportunity and demonstrable impact intersects. By Gemma Bourne, managing director at Better Society Capital
Local investment is now a statutory responsibility for LGPS funds, and pooling has created the scale to act on it. The harder question is what to invest in, and that is where we think our own experience is most useful. Below are the places where mayoral priorities and genuinely investable opportunity are already meeting.
We have spoken at length about the ‘myths’ that hold back local investment: that a large allocation is unrealistic for administering authorities, that targeting impact in a region means taking on undue risk, and that it can be hard to tell which managers are genuinely committed to local impact. Today, we turn to the opportunities that show otherwise in practice.
At Better Society Capital we have spent over a decade investing in UK private market impact funds alongside LGPS investors, in exactly the areas Mayoral Strategic Authorities (MSAs) now name as priorities: inequality, housing and SME finance. That experience has taught us the strongest local opportunities rarely arrive fully formed. They are built alongside a council or combined authority long before any capital moves.
Housing and homelessness
Housing and homelessness sit near the top of almost every MSA’s priorities, and temporary accommodation is among the fastest-growing pressures on council budgets. It is also the most institutionally ready part of the UK impact market.
The Resonance Housing Pathways Fund, to which we have committed, is targeting £700m. Resonance has a decade’s track record here, bringing institutional investors together with expert housing partners to increase the supply of homes for people facing homelessness. For an LGPS investor the appeal is not only the impact but the scale, the experienced manager and a return profile that stands on its own terms – and with homelessness firmly on the national policy agenda, that is likely to hold.
Local investment in this way isn’t new. To scale the earlier funds, we invested alongside local government enabling homes to be delivered in Bristol, Oxford and Milton Keynes. These investments have gone on to provide homes for thousands local people at risk of homelessness.
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SME finance and inclusive growth
Access to finance for smaller businesses is named as a priority by several MSAs, including the West Midlands Combined Authority and the North East. The question is how to reach the investable businesses mainstream lenders will not, at institutional scale.
Community Development Finance Institutions (CDFIs) lend to exactly those businesses, often to founders turned down everywhere else, and disproportionately to those from under-represented groups. Individually these loans are far too small to interest institutional capital, but bundled together they become an investment of meaningful size with a more balanced financial profile. The Community Investment Enterprise Fund invests into CDFIs directly, supporting their sustainability and their capacity to lend to founders who cannot typically access traditional finance, including those from under-represented groups. Lloyds is an investor in phase two, which speaks to its institutional appeal.
Bristol shows what this looks like when the authority is involved from the outset. We co-designed City Funds with the Mayor and Bristol City Council, and still sit on its Investment Advisory Committee. That built on our 2017 investment into Bristol and Bath Regional Capital’s place-based funds, where the council supplied the pipeline and relationships.
Local government can unlock investor capital to deliver real outcomes for local people and deliver returns for pension holders.
Gemma Bourne, managing director at Better Society Capital
Children’s social care and complex needs
Children’s social care is one of the largest and fastest-growing lines on council balance sheets, often delivering poor long-term outcomes and is one of the hardest to shift through commissioning alone. Social outcomes partnerships (SOPs) are a route proven to work.
SOPs are funding arrangements where government pays for verified social outcomes, and the market gained real momentum last year with the £500m Better Futures Fund. They suit some of the most complex issues regional government faces, from children’s social care to support for unpaid adult carers, where the ability to relieve cost pressure through locally delivered, preventative services is highly valued. The council, as commissioning body, sets the outcome measures the service must deliver, so its priorities and the investor’s return are aligned by design rather than simply hoped for.
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What we have learnt, and what happens next
One lesson recurs across all of these, and it is the one we would most want an administering authority to take from our experience: local government can unlock investor capital to deliver real outcomes for local people and deliver returns for pension holders.
The Greater Cambridge Impact Fund shows how that works. It is a £10 million vehicle co-designed with Cambridge City Council, with first-loss protection split equally between the council and Cambridgeshire and Peterborough Combined Authority. That first loss is what allowed investors like us to come in on the terms that reflect the level of risk.
The Social Investment Pilot makes the wider point. In 2020, as part of the Government’s “Everyone In” response to rough sleeping, MHCLG and Better Society Capital pooled resources into a £50 million pilot that drew in a further £138 million, including from the Greater London Authority and GMCA. It has since bought 528 homes, more than 80 per cent of them in the areas of greatest need, and independent evaluation found it to deliver better quality homes and better outcomes for tenants than the temporary accommodation they would have otherwise been in.
The pilot worked because government was not simply a cash investor. Its value lay in the signal this gave to the market which catalysed partnership, pipeline and delivery. That is the contribution an MSA is best placed to make. And what a decade of investing alongside LGPS funds has taught us is that these opportunities are found through partnership: with fund managers who know their regions, with local authorities who understand the need, and with other investors willing to move early.
Housing, CDFI lending and social outcomes partnerships are only three of the routes available; there are more. That is the point we set out to make when we began dispelling these myths: the barrier is rarely the absence of opportunity, it is the absence of familiarity. The myth worth retiring is not that local investment can be made safe, but the idea that it still has to be invented. It does not. There has never been a better moment to build these partnerships, and to make a real difference to local people’s lives whilst delivering returns for the members who depend on them.