Evergreen funds

Mark Aspinall 14 December 2021

What are evergreen funds? And what are the benefits?
Central grant is diminishing (by 37% in real terms in the decade up to 2020 according to the Institute for Government) and despite this councils are under increasing pressure to deliver their legally mandated services. That creates great pressure on finding ways to fill the funding gap (for organisations that cannot borrow to pay for day-to-day services).

One of the tools that is now coming up in discussion with increasing frequency is an evergreen fund. So what is that? Quite simply, it is a pool of money that is used to make a range of equity investments - usually in housing connected projects so that the investments are secured - that fit with the council’s objectives. Those investments are typically in the council’s own borough or region. Whilst they typically start quite small (particularly if it’s a pilot) over time it creates a vehicle which eventually becomes self financing and can even give the organisation a return over and above the core delivery of housing strategy objectives.

Over time this builds into a pot that is self financing and, with careful management, continues to grow (some angel investment groups take this approach for instance). The limitation is that those investments need to be equity based (real assets) which can give a return, rather than services which typically have limited revenue generation opportunities.

Evergreen funds take time to establish and build and need to be carefully designed and managed but the effort is worth it as there are three key benefits that make this approach particularly powerful:

  1. Once the assets are on the balance sheet of your investment vehicle you may be able to borrow further sums from financial institutions (typically at significantly less than 1% currently) further accelerating the growth of the fund.
  2. Usually, and particularly if it’s an ‘arms-length’ vehicle from the council, the funds can be flexed between approved projects much more simply than if they are stand-alone with discrete funding for each.
  3. With careful contracting it may be possible to ensure that the asset pool that gets built up on behalf of the council is not subject to ‘right to buy’ rules and the housing stock remains available to deliver to local community needs.

However you’re planning to make your budget balance, now might be a really good time to consider including an evergreen fund. What you will need; a cautious approach, a sound rationale for each investment and finally, patience!

NB: this is a simplified overview of evergreen funds and should not be taken as an investment recommendation. You should always seek professional advice before making any funding decisions.