Bonds away!

I have been fascinated by the potential of the social investment market for quite some time and especially the creation of new financial products,  dubbed social investment bonds (SIBs). The idea that social investment bonds can provide  two types of return to an investor—both social and financial—seems  a win-win scenario and, as an ex-financial analyst, I am intrigued.

To date, investing in social impact bonds has mostly been the preserve of trusts and foundations willing to be the guinea-pigs/first movers.  But, as of last week, a new product is being offered to retail investors.  Allia have launched the Future for Children Bond, which allows investors to access the new Essex Social Impact Bond (SIB), one of the 14 SIBs live or in development in the UK today. This Essex SIB will fund a programme run by Action for Children to provide intensive family support for children aged between 11 and 16 in Essex who are at risk of going into care.

Allia were awarded a grant by the  Big Lottery Fund to develop this bond under BIG’s Next Steps programme, which supports new approaches to raising finance in order to help address significant social issues.  Part of the grant is being used to conduct an evaluation of the success of the product, which NPC is undertaking throughout the launch and sales period of the bond.

NPC will collect views on the launch process, the structure of the product, and the response from investors to help inform BIG and Allia’s future thinking on social investment and the access opportunities for retail investors. This builds on NPC’s previous research, including our report Best to Borrow, as well as our regular training sessions for charities on social investment.

The bond is structured to give retail investors confidence in a return on their capital. 78% of the subscriptions are invested in an 8 year loan to Places for People Homes, an AA rated social housing provider, 2% is spent on fees, and the remaining 20%is invested in the Essex Social Impact Bond. Upon maturity of the social housing loan, investors will see their capital returned—like any bond. But any return on top of this will depend on the success of Action for Children’s programme of multi systemic therapy in reducing the number of days that a child spends in care. The saving that accrues to Essex County Council will be the basis for the return calculation.

Despite some newspaper reports, there is no ‘promised’ return over and above a return of the initial capital; but investors who can find the £15,000 minimum investment will have the satisfaction of knowing that part of their funds are being used to improve the life chances of disadvantaged children.  Adolescents are the largest age group entering the care system, and, when in care, their  level of GCSE attainment is five times worse than for children overall.

I will watch with interest to see how many investors apply for this bond. We’ll have to wait and see whether it becomes a useful product to replicate in other areas, providing more individuals with access to the ever-developing social investment market in the UK, but we’re excited to be playing our part.

• Allia has created an infographic to chart the growth and development of the social investment market, leading up to the launch of the Future for Children Bond. Download here.