GOOD PRACTICE GUIDE The loan arrangers: Two years into the Arts Impact Fund
Loans, rather than grants could be the way forward for some arts organisations seeking to expand. Fran Sanderson of Nesta looks at a pilot project – the Arts Impact Fund
The Arts Impact Fund is a pilot initiative, launched in 2015, to make unsecured loans to arts and culture organisations delivering social out- comes in the areas of health and well- being, education and/or citizenship and community. By investing in this way we want to support more organisations to become enterprising and resilient, ensuring that the arts continue to play their essential role in our everyday lives, our cultural identity and our economy.
Managing its first two years is set to be the hardest and most intensely rewarding work of my career to date. I was involved in this project from near the outset. While working on secondment at the Esmée Fairbairn Foundation I tried to ensure that the resulting investment opportunity was something the Foundation’s trustees could support through their investment portfolio. This would be alongside representatives of the other founding partners (Arts Council England, Nesta and Bank of America Merrill Lynch and Calouste Gulbenkian Foundation), as well as the Cabinet Office, and the brilliant independent
consultant Kate Markey. She is the social enterprise veteran and now CEO of Blue Sky Ventures who pulled it all together into a proposal that worked for everyone.
The great advantage, particularly during the often lengthy multi-party negotiations, was the clear will around the table to make this work. Everyone wanted to prove a concept, whether it was sector-specific impact investment; an appetite for unsecured lending or repayable finance more broadly in arts and culture; blending, or ‘co-mingling’ public, private and philanthropic capital in one structure to compound the impact; using capital to encourage demonstration and articulation of how the arts can be a powerful force for social bene t and change.
I feel excited about where we have got to, with a portfolio of 15 approved investments totalling £5.65m, with four months left in the initial investment period. When I took on the job, I was most concerned about the appetite for loans in the required value range of £150-£600k, as well as the level of ‘investment readiness’, as a catch-all term. Since then, we’ve been inclined to deconstruct and analyse the ways in which organisations can fall short of being ready to take on in- vestment.
An organisation might be looking at an opportunity, trying to square it with currently available grant funding, and move onto Arts Impact Fund as a fall back option. This will generally receive a lot of scrutiny from trustees; and rightly, because a grant opportunity will have been presented to them very differently to an investment opportunity, with less incentive to look at potential financial returns to the organisation. Others need more general business planning support, from scoping out a specific investment initiative, to understanding how to research and develop the ideas at an earlier stage. Some need revision or refreshing of internal processes and governance, or capacity building in business development. We continue to work with partners such as Creative Industry Finance, Triodos Bank (through Big Lottery’s Big Potential programme) and a pilot mentoring programme with Bank of America Merrill Lynch employees, who explore and provide the necessary sup where there is capability to take on investment.
As a team, we have been thoroughly reassured that organisations have appetite to invest in their own diversification and resilience – as we had hoped, the arts and culture organisations have so far displayed tremendous ingenuity in response to the offer. We worked closely with Bow Arts Trust, for example, to design a bespoke loan agreement that enabled us to match our capital to their specific requirements. The relationships have been critical, both with our own investors (such as Bank of America Merrill Lynch) and with investee organisations. We are in constant dialogue with our investors, and our investment committee meetings are a fascinating discovery exercise. They are a reunion of those pre- sent during the genesis discussions, most of whom have stayed on the project in order to turn our theoretical investment guidelines into an empirical portfolio that continues to match their individual visions of the fund, some new investor representatives, as well as our independent members: Richard Brass (Chair), Moira Sinclair and Geoff Burnand. With the depth and breadth of insight offered by the vast and varied experience represented by those around the table, these meetings are now amongst my most rewarding afternoons of the year.
The concessions to informality that our process almost immediately underwent – take the eradication of application windows, for example – are strong indications that we are determined to be responsive to the needs of a sector that is getting used to (with amazing agility and ingenuity, frankly) to a new philosophy around funding and investment. A key part of the job has been education, and in particular trying to facilitate the transfer of information through an organisation, from pioneer to executive to non-execs, without the idea of un- secured lending as a tool for growth, losing momentum on the way.
For all of the stakeholders, this project is only successful if the out- come is the provision of finance that meets the needs of the arts and culture sector. With the end of the pilot investment period imminent, we are now looking to the future, developing plans to raise a much bigger fund to drive the momentum and further prove the huge potential and value, both for investors and organisations, of impact investing in arts and culture.
For more about the Fund and case studies about those supported so far, visit http:// www.nesta.org.uk/project/arts-impact- fund
Fran Sanderson is head of arts inves ments and programmes at Nesta