There are good alternatives to the social impact bond

The social impact bond is not ready for mainstream investment yet, but there are some alternatives that offer social and financial return, says John Hildebrand of Rensburg Sheppards

John Hildebrand
John Hildebrand

There has been some interest from charities in investing money in social impact bonds because they might offer the opportunity to improve social impact and turn a profit, but at the moment these investment vehicles are still in their infancy.

What else can charities invest in with the aim of providing attractive returns while also having a positive social impact? Leaving ethical investment aside, two areas offer attractive opportunities.

The first is in the bond market. Places for People, a housing association whose main purpose is to provide social housing, has just issued a five-and-a-half year bond with a 5 per cent annual interest rate.

The association is a not-for-profit organisation regulated by the Tenant Services Authority. As a high proportion of the rental income comes from government, the bonds are seen as relatively secure and have attracted an Aa3 rating from the credit rating agency Moody's.

The bonds offer a more attractive yield than a government bond while helping to fund the provision of social housing, which in turn should contribute to an improved social outcome.

Other projects offering attractive yields that charities might wish to consider are generally based on infrastructure assets. The term infrastructure relates to the internal structures that help an economy function, ranging from the national grid to the provision of schools, hospitals and courtrooms.

Infrastructure funds tend to concentrate on the latter areas and they, like the Places for People bond, are seen as attractive because they offer decent yields and a reliable income stream with most of the income coming from government or quasi-government bodies. In addition, they generally help to replace or improve the social fabric of the country.

There are currently three main infrastructure funds primarily invested in already constructed private finance initiative projects. Once the construction risk has been removed, the contracts are based on the income flows from providing the service.

The three funds are: the HICL (HSBC Infrastructure) infrastructure fund, the John Laing Infrastructure Fund and the International Public Partnerships fund. In addition, GCP and 3i offer quoted funds in this area. The average yield on these funds is 5 per cent and, as they are based on projects with some form of inflation linking, the income from them is likely to grow over time.

When infrastructure funds were first introduced they were regarded as highly specialist, but they are now moving into the mainstream and could be a sensible investment for charities.

As the market for social impact bonds develops, and becomes more liquid and diverse, charities could well consider investing in them - just so long, obviously, as they offer returns that are sufficiently attractive and secure.

In the meantime, charities can make other investments that help their own balance sheets as well as serving a social purpose.

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