Future for Children Bond
The Future for Children Bond was a pioneering approach to explore the opportunity for investment in payment-by-results initiatives by retail investors through financial intermediaries.
With support from the Big Lottery Fund, Allia developed an innovative structure, combining a low risk loan to a social housing provider with the high risk investment in an outcomes-based model to make an offer to the public that would return investors’ principal on maturity plus a variable return according to success.
The initiative chosen for this first market test was the Essex social impact bond, set up by Social Finance Ltd for Essex County Council, which had already secured its full capital requirement from a number of institutional investors. One of these investors, the Esmée Fairbairn Foundation, kindly offered to scale back its commitment if alternative finance from retail investors could be made available.
Encouragingly, the offer of the Future for Children Bond found clear interest from a number of individual investors and intermediaries in social investment products. The applications received demonstrated that certain investors could be motivated to invest their capital for the purpose of creating social impact, even though for this product the expected financial return was unknown. The campaign also revealed however some of the challenges in the structuring and distribution of complex products for retail investors, and unfortunately the level of capital subscribed by the closing date was insufficient to enable Allia to meet the costs of issuing and managing the bonds over the eight year term.
As a first pilot product, the Future for Children Bond has nevertheless been hugely valuable in assessing the retail market for social investment and generating learning about the steps needed to enable it to grow. These lessons will be used to inform the development of future Allia products and will be shared with the sector, together with policy recommendations, in a report by NPC to be published in May 2013.