The Government's much-vaunted Big Society bank launches with the name Big Society Capital today under the chairmanship of Sir Ronald Cohen, a pioneer of the UK venture capital industry.
In its first transaction, the £600m fund has invested £1m in Private Equity Foundation, an organisation helping disadvantaged teenagers find jobs when they leave school; £400m of the fund will be unclaimed assets left dormant in bank accounts for more than 15 years, with the rest coming from HSBC, Lloyds Banking Group, Barclays and Royal Bank of Scotland. Sir Ronald, who founded the private equity firm Apax Partners and is one of the Labour Party's biggest donors, said that the payment to Private Equity Foundation was an investment rather than a loan; he hopes it will yield an annual return of 6.5 per cent.
He said: "We're calling it Big Society Capital as it's an investment firm, not a bank. There are big opportunities in social investment, which is going to become a major area because charitable organisations don't have enough money. We are very interested in areas like problem families, healthcare access and education."
As well as boosting the provision of existing state services, Sir Ronald believes that creative new techniques, such as the "social impact" bond, could make money. The six-year bond, agreed with the Government, uses £5m of cash raised from charities and high net-worth individuals to counsel 3,000 ex-offenders in Peterborough in an attempt to cut re-offending rates. If re-offending in this group is at least 7.5 per cent less than in a control group of offenders, investors take a share of the savings made by the Government.
Nick O'Donohoe, formerly global head of research at JP Morgan, will be chief executive of Big Society Capital.