The foundation is increasing exposure to impact investments from £22m (€26.7m) to £100m, the largest impact investment allocation by an UK charitable endowment, prioritising investments that create better health outcomes
- Foundation to invest further £100m by 2026 in enterprises targeting health and social improvements
- Lessons from existing £22m UK-focused impact portfolio to be applied
- Overseas investments with global impact will be considered
Guy’s & St Thomas’ Foundation has been supporting measures to create a healthier society for centuries, their activities focused mainly on the area of London around the two hospitals from which it takes its name.
Today it’s a major player in the sector, backed by an endowment of some £1bn (€1.2bn), much of that invested in property and financial markets.
With the returns it generates, the foundation has long funded grants to institutions seeking to make improvements in urban health, particularly in more deprived areas of London, by tackling childhood obesity, air pollution, helping people with multiple long-term health conditions and making early interventions to support children’s mental health.
The foundation decided to move into the impact investment arena in 2018, building up a £22m sector portfolio since then.
The ten investments in its current impact portfolio are either “impact-managed” investments that support established funds to increase the depth of their impact, or “catalytic” investments to help newer funds or models scale up.
Sectors covered include medical devices, healthcare delivery, and life sciences, as well as determinants of good health such as environmental health, affordable housing, education, employment and training and community infrastructure.
£100m portfolio targeted
The foundation’s first impact investment was in Apposite Healthcare Fund II, which invests in UK and European businesses developing healthcare and social care services, digital health solutions and medical products and pharmaceuticals.
Another example is the £10m invested across three property funds via social impact property fund manager Resonance, which works with local communities, social enterprises and charities to create impact-led investment funds. These funds target, for example, longer term health impact by scaling up solutions for housing problems experienced by vulnerable women and children or those sleeping rough.
The foundation is now scaling up activity in the sector significantly, encouraged by the interim results of this portfolio, according to Anita Bhatia, investment director of the foundation’s endowment teams.
Last month, the foundation said it was setting a target of £100m of impact investments to be made by 2026, mainly through funds active in health and its social determinants. Ticket sizes are likely to be in the £3m-£10m range with an average of about £5m.
Bhatia tells Impact Investor that the experience gained since 2018 has helped in refining their strategy which is now more global in its outlook and with more capital allocated to catalytic investments.
“We realised during our testing phase that we were missing out on some impact opportunities, because our earlier focus had been to aim high on return and impact goals for every investment that we made. Our approach has now shifted to setting these goals at a portfolio level,” she says.
In particular the team will now look more favourably at investments whose returns are concessionary, if they can produce very high impact outcomes.
“We still want to make sure that we’re supporting our overarching endowment return objectives of inflation plus 4%, but for the impact portfolio not every fund has to be hitting those high returns. We are open to concessionary return opportunities if the impact objectives are high. That’s okay, because the next opportunity might be aiming for top quartile returns, even if it’s impact may not be the highest possible we could get. That way you can balance out the portfolio in terms of the return and impact objectives,” Bhatia explains.
Moving away from impact silos
The strategy will allow investment in a more diverse range of funds. The foundation is keen to build on its experience investing in funds targeting the social determinant areas of the health sector.
“There are increasingly more impact funds offering exposure to nascent sectors and markets, and that really supports the growth of the impact market – and it is reassuring news for investors that they can build diverse portfolios for impact. We face substantial social and environmental challenges – our quality of life is impacted by our environment and spaces we live and work in, by access to good quality education and training, the food we eat. We need to invest in pioneering ideas and solutions that help to improve all these aspects of our lives ” she says.
She also notes that a recent landmark UK court ruling should encourage more mission-aligned investing and impact investing by charitable organisations. The High Court ruling means charity trustees in England and Wales can now adopt a policy that aligns their charities’ investments with their charitable purposes, even if it risks reducing financial returns. Following the ruling, UK charities can now safely exclude some lucrative but non-impact investments from their portfolios, freeing up funds for higher-impact uses.
Broadening geographical reach
The foundation will also look to broaden the geographical spread of its impact investment portfolio, which has been largely UK-focused until now.
“We’re finding a lot of good quality, impact investment opportunities in the UK, so these will form the main part of the overall impact allocation, but I think we’ll see more global opportunities as well,” Bhatia says.
By doing this the foundation hopes to learn from innovative approaches to impact investment in health being adopted elsewhere in the world, and to tap into investments that could have benefits closer to home.
“To give one hypothetical example, in London, air pollution is a major problem that causes severe health issues, and it’s covered by one of our programmes. So, if we find a funding opportunity in, say, Asia or the US addressing the health effects of air pollution successfully, then we want to learn from that model and replicate its success in UK cities as well,” Bhatia explains.
Five dimensions framework
In terms of impact measurement, the foundation uses an in-house framework, in part informed by its collaboration with Impact Frontiers, a peer learning and market-building collaboration within the sector.
The foundation has developed an impact assessment scoring model based on the five dimensions of impact outlined by the Impact Management Project initiative: Who will benefit? What is the benefit? By how much will they benefit? What will the added value of the impact be compared to what would have happened without the investment? And what is the risk that the impact might not materialise?
“This has helped us to articulate and understand better our impact goals and their relevance to our foundation’s mission,” Bhatia says. “We are monitoring and reporting on our individual portfolio holdings regularly, sharing the interim progress of both the financial and impact performance with our stakeholders and engaging with our portfolio managers to ensure that the objectives are on track. We’re at a stage now where we’re refining how we report impact data to our stakeholders.”