The first corporate bond fund dedicated to businesses with a social purpose has reached £100 million invested, Good With Money can reveal.
The Threadneedle UK Social Bond Fund buys bonds issued by companies such as affordable housing providers, hospitals or transport engineers. 80 per cent of the companies it invests in are in the UK and a quarter of the fund is secured against housing and property.
Performance has outperformed the IA Sterling Corporate Bond, its peer group, with 12 per cent growth in the first year and 5.1 per cent in the second year, demonstrating that returns do not have to be sacrificed to achieve a positive social outcome. Just over a third of the fund’s investors are individuals, attracted by the social purpose as well as the risk/ return profile, the liquidity – and the ISA eligibility.
Despite conceptions that having a social purpose inevitably constrains performance, Simon
Bond, who manages the fund, told Good With Money: “I have never felt constrained by our criteria. I have a third of the whole market to deal with.
“From the beginning, we rejected the idea of sacrificing return. In fact, I have had to downplay the performance of the fund so far because we won’t get that on a regular basis. We get the correct return of the level of risk taken – a corporate bond return. Over and above that, investors get to feel good about it and there is a social return too.”
About a third of the total universe of corporate bonds meet Big Issue Invest’s criteria for social purpose. Among the Threadneedle fund’s biggest holding are the Wellcome Trust, Unite, Lloyds Bank and the University of Leeds.
A lack of Government funding for local authorities means there is an increasing need for private funding. The fund actively works to help organisations, such as local authorities and charities, to issue bonds, expanding its pool of potential investments in the process. Organisations must increasingly show a clear “use of proceeds” to receive investment.
The recent launch of the Retail Charity Bonds platform has given charities an alternative source of capital and the Threadneedle fund has invested in three charities including Golden Lane Housing and the Charities Aid Foundation via the platform.
The fund was launched almost three years ago in partnership with Big Issue Invest and received £10 million seed capital from Big Society Capital. Unlike other social purpose investment vehicles, the fund offers daily liquidity, meaning shares in the fund can be bought and sold daily. The minimum investment is £2,000.
It differs from peers because rather than screening out activities at companies that are harmful, it actively seeks out opportunities to buy bonds in companies that are doing something beneficial.
The fund, which will be 3-years old at the end of this year, is committed to its social purpose. There is also a Social Advisory Committee to ensure the fund isn’t losing its way. Half of the management fees go to the Big Issue and the firm has equalised the fees so that they are the same for all investors, “regardless of whether they are a large institution or an individual”, says Bond. “Like the writing in a stick of rock, it should be social all the way through”.
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