If you build it, will they come?
Last week, more infrastructure has been put in place for development of the social investment market. Launched a few days ago, the Retail Charity Bond platform aims to join charities and investors together more cheaply and more swiftly than ever before. All these connections, and at a fraction of the cost of HS2.
Among myriad press coverage on social investment, the Retail Charity Bond is worthy of note. It is a bond-issuing platform that potentially enables charities to access the bond market more easily and cheaply, and for investors to buy charity bonds in a simpler way and confident in the knowledge that they should be able to sell them in future.
To give would-be investors peace of mind, the bonds are arranged and distributed by the well-established Canaccord Genuity. The bonds will be listed on the London Stock Exchange and are expected to be admitted to trading on the order book for retail bonds, where they may be bought and sold on the secondary market. The administration is undertaken by Allia, a charitable community benefit society.
The bond platform is supported by a roll-call of the worthy in the social investment and financial world, including Big Society Capital and Threadneedle, who manage the first UK Social Bond Fund with daily trading.
Why is this significant? Charities will now be able to issue bonds at a lower cost than before. In theory, this could mean smaller issues, more suited to the needs of charities, though we don’t yet know how small. And because the bonds are traded, their liquidity should—again, in theory—allow for a lower cost of capital.
On the positive side for investors, the bonds will trade on a recognised secondary market which should mean increased liquidity and depth. How liquid this will be, only time will tell. But it could aid the ability to buy and sell bonds cheaply and easily. Through having a listing, the bonds will also find a more comfortable place in portfolios.
We don’t yet know how many bonds will be issued or how large the issues will be. Ideally, a large benchmark issue will come through soon, which will kick-start pricing and the development of a yield curve. Whatever the reaction, it’s certainly a step in the right direction.
We at NPC are not allowed to give investment advice. But before you rush out to buy charity bonds for your ISA and SIPP, bear in mind that putting all your eggs in one basket is risky. The principles of diversification within a portfolio should apply, as outlined in our twin guides to social investment for charities and funders, Best to borrow? and Best to invest?