Since the launch of the Peterborough bond in 2010, much attention has been paid to social impact bonds (SIBs) from government, the voluntary sector and the wider public. But there is a concern that there are currently too few investors prepared to supply the required capital for future bonds, and that the field is dominated by a small number of trusts & foundations and individual investors. How can the social investment market, and social impact bonds in particular, appeal more widely?
Allia has developed the Future for Children (FfC) bond in response to test the retail market’s appetite for investing in a social impact bond. The bond offered investors the protection of their initial capital, with a chance of an additional variable return subject to the success of a social impact bond, structured around a social programme to help children on the edge of care. It was devised in such a way that the original social impact bond to which the FfC bond was linked would in no way be affected by the success or failure of the FfC bond. Product testing is a recognised part of a developing market and Allia and its partners should be commended for their time and resources dedicated to putting into practice a concept that had previously only been discussed on paper.
In the event, Allia decided not to go ahead with issuing the bond as the level of subscriptions were below the amount needed for cost effective management of the bond. In the process of marketing the bond, Allia generated some very positive media coverage, has helped improve the financial adviser market’s knowledge of social investment, and above all has created valuable lessons for the sector as a whole.
This evaluation of the bond highlights several challenges faced by Allia, from a marketing, adviser and product perspective. It is not possible to attribute the low level of take up for the bond to one particular aspect but this report features two groups of findings:
- findings specific to the product and the process, which can be addressed by future product providers; and
- findings that rely on market and regulatory development and are therefore outside the control of product providers, but which should be taken into account regarding future product design. These findings are also useful for policy makers attempting to grow the retail market.
We have summarised the challenges faced by the bond offer in the table below, all of which are explained in more detail in subsequent pages, assessed if they are fixable and suggested some possible solutions.
The concept of payment by results has captured the imagination of policy makers, seeming to offer the public sector a risk free way to harness private capital to fund innovation in service delivery
Tim Jones, Chief Executive, Allia