Schroder BSC Social Impact considers calling it quits

The future of the 'impact' investment trust is on the line less than five years after launch as the board announces a strategic review.

Schroder BSC Social Impact (SBSI ) is considering winding down, admitting to difficulties building scale amid a prolonged period of derating for the alternatives sector. 

The £63m investment trust – which started up in 2020, offering investors the chance to do good with their money via private market investments – has announced the launch of a strategic review.

In an update today, the board addressed its ‘inability to scale’ and entrenched discount, saying that attracting new investors had been ‘challenging’. The shares are currently trading about 25% below net asset value (NAV). 

The directors said all value-enhancing options for the future of the trust will be discussed with shareholders, including the complete realisation of the portfolio in a managed wind-down.

However, SBSI’s portfolio is fully committed with ‘low levels of liquidity’ and a range of maturity dates, meaning a wholesale disposal will take time.  

The trust has significant exposure to long-dated investments, with around 60% of NAV currently committed to or invested in funds with a remaining maturity profile of five years or more. The longest-dated investments are expected to mature in nine years. 

In today’s notice, the board recognised ‘there is a balance to be struck’ between providing early liquidity to shareholders and protecting long-term investment performance, and said no new investments would be made that increase portfolio maturity. 

In Winterflood analyst Emma Bird’s view, the trust has been successful in its core objective of ‘delivering measurable positive social impact’, as evidenced in its latest impact report. 

However, she said the trust had suffered from backlash against impact and ESG – environmental, social and governance – investing over the years following the Covid-19 pandemic, ‘with investors seemingly prioritising shorter-term financial returns in a higher interest rate environment’.

This, combined with macroeconomic uncertainty and weak sentiment on alternative investment companies, has led to a significant derating of SBSI’s shares, which consistently traded close to NAV until late 2022.

Bird added that the sustained wide discount ‘has prevented the fund from being able to grow’ and said SBSI is ‘likely to be considered sub-scale for the majority of investors.’

Since its December 2020 launch, the trust has delivered positive NAV total returns of 2.5% a year, though it has underperformed its inflation-linked target of CPI plus 2%. 

SBSI was formed as a joint initiative between Schroders and Better Society Capital, which invests in tackling social issues and inequalities in the UK. It was the first publicly listed UK fund to access the niche of social impact investing and has maintained high exposure to social housing since its launch. According to results in June, this makes up 45% of the current portfolio.

Like-minded trusts are also dwindling in number, with homeless shelter investor Home REIT winding down after a scandal, for example.

According to Refinitiv data, the biggest shareholders in SBSI include Big Society Capital (27.7%), Schroders (17.1%), and East Riding of Yorkshire Council (9.3%).