A new phrase is set to enter the complex lexicon of financial services – the social impact bond.
Allia, which describes itself as a charitable social investment organisation, will this week start offering an investment bond with a difference. It is emotively dubbed The Future for Children bond, and part of the investment goes to good causes – not the usual ones you would think of, but to Essex County Council to "improve the life outcomes of children aged 11-16 at risk of going into care". It is believed to be the first investment of its type in the UK.
Tim Jones, the chief executive of Allia, explains: "We're seeing growing interest among investors in using their funds to achieve a social impact as well as providing a financial return. Our capital-plus bond gives the first opportunity for individual investors to take part in this kind of model.
"With the Future for Children bond, investors can give a better future to some of society's most vulnerable young people, with the potential for sharing in the financial benefits while keeping their capital at very low risk."
For a minimum investment of £15,000, Allia puts 78 per cent of investors' money into an affordable housing programme meant to return a 100 per cent maturity after eight years – so in effect the original capital is returned to investors. Twenty per cent of the original investment is directed to the Essex County Council social impact bond, and the investor enjoys the returns on this cash.
However, these are not guaranteed, so after eight years the investor could be left with their original investment, which would be worth much less in real terms. Management fees are 2 per cent. Although Allia describes its product as "very low-risk", it is unregulated so there is no recourse to the Financial Services Compensation Scheme if for example the provider were to collapse. Nor can you go to the Financial Ombudsman Service.
Investments with a socially responsible twist may be getting more of a look-in since financial advisers were, as a result of the Retail Distribution Review (RDR), banned at the start of the year from earning commission on investment sales.
One of the UK's biggest investment trust groups, Alliance Trust says: "Until now, there hasn't been much incentive for a financial adviser to consider socially responsible investing. However, the advent of the RDR will turn this on its head."
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