Threadneedle Social Bond Fund: mainstream dream to reality
Threadneedle Investments today announced that Warwickshire County Council has invested £30 million into the Threadneedle UK Social Bond Fund, with a further £10 million committed over the next few months.
The Social Bond Fund is the world's first social investment fund to make social investment available to large institutional investors and also readily accessible to individual investors. It offers institutional and individual investors the opportunity to invest in projects which create social value, and get an investment return.
Its progress could be key to helping a mainstream culture of social investment emerge in the UK.
How it works
Launched in partnership with Big Issue Invest, the social investment arm of the Big Issue magazine, the Threadneedle Social Bond Fund invests in bonds issued by organisations that support socially beneficial activities and economic development in the UK.
That means it's a fund that invests in the types of organisations whose central goal might be to develop the local area, or make housing more accessible. It is currently invested in bonds issued by housing associations including East Midlands Housing Association, mutuals like Coventry Building Society and providers of mental health care and learning disabilty services such as Derbyshire Healthcare.
The ability for institutions and individuals to invest and take money out when they want to – the liquidity of the fund – and a steady rate of interest to date, has made the fund an appealing social investment product. Retail investors can invest with as little as £2,000 and include it in an ISA.
To date £10.7 million has been allocated to the construction or refurbishment of social housing and at the same time, “it has generated returns similar to those of a plain vanilla corporate bond fund,” said Moira Gorman, local authority client director at Threadneedle.
Since its launch in January 2014, the Social Bond Fund has returned 6.89% net of fees, which is at the higher end of the expected return on a conventional corporate bond fund, typically ranging from 3.5% to 6.5%.
How is the fund blending social value and financial return?
Big Issue Invest (BII), the organisation which conceived the bond, acts as a social advisor to the fund, and sits on the fund’s Social Advisory Committee. The Committee reviews, challenges and monitors the fund's social performance.
“The way in which the fund’s social impact is measured is what makes it different to other socially responsible funds,” Sarah Forster, director of development at Big Issue Invest, told Pioneers Post. The social impact of the fund is measured with a social assessment methodology developed by BII and implemented with input from Threadneedle’s Governance and Responsible Investment (GRI) team.
Fund manager Simon Bond, who has 27 years of experience in fixed income, and has taken a keen interest in social investment, is responsible for ensuring that the fund goes well beyond screening out investments with negative impact. “We use the methodology to follow the money through to social outcomes,” he told Pioneers Post.
The fund is geared towards eight specific social outcome areas – affordable housing; education; employment and training; health and social care; financial inclusion; community services; transport and communication infrastructure; utilities and the environment. Bonds issued by organisations that deliver in these areas are selected and given a ‘social intensity’ rating.
"For so long social investment has been seen as something esoteric; on the edge of the market. This is using economics and incentives to change the market. We’re trying to shift the demand and supply curve so that the economy can begin to allocate its resources more efficiently,” Simon Bond, fund manager.
The fund currently holds 44.9% high intensity bonds and only 13.25% that are low intensity. "We use the lower intensity bonds to make sure we are generating financial return and maintaining the liquidity of the fund, which enables investors to put money in one day and withdraw it the next,” Bond said.
“The methodology provides ‘filters’ for portfolio investment to channel as much investment as possible to people and places with the greatest social need," said Forster.
"It is balanced across all eight social outcome areas, with a strong presence in affordable housing (23%), transport and communications (18%) and utilities and environment (18%)," she continued.
Why is Warwickshire County Council investing?
The nature of the fund means local authorities can align their investing with their objectives, put money to work for the benefit of society and generate solid returns. “Our investment supports organisations that underpin sustainable economic development and job creation up and down the country," said John Betts, head of finance at Warwickshire County Council.
Typically social investments require investors to lock their money away for a number of years, making it a product less suited to individual investors and others who might want to convert their investment to cash more quickly. "The daily pricing and liquidity gives us the ability to shift back into cash at short notice if necessary, an important factor that other fixed income funds with a social purpose do not offer,” Betts said.
The £30 million investment and further commitment of £10 million investment over the next few months in the Threadneedle Social Bond Fund has been a significant boost for the fund, and for the wider world of social investment.
Commenting on the investment, new Minister for Civil Society Rob Wilson said in a press statement, the Social Investment Tax Relief "was helping social investment move towards the mainstream". The fact that Warwickshire County Council has chosen to invest in Threadneedle’s fund "is a real signal that there is appetite from big investors for products that work to deliver both socially and financially,” he continued.
Simon Bond added: "For so long social investment has been seen as something esoteric; on the edge of the market. This is using economics and incentives to change the market. We’re trying to shift the demand and supply curve so that the economy can begin to allocate its resources more efficiently.”
After this year’s call for a paradigm shift towards investment decisions that take social factors into account from the G8 Social Impact Investment Taskforce chaired by Sir Ronald Cohen, the fund has a key role to play in helping a mainstream culture of investment seeking both financial and social returns emerge.
Photo Credit: Nana B Agyei