Charity bonds show strong performance following high demand from socially responsible investors
Strong demand from socially responsible investors, combined with the drop in interest rates post-Brexit, has created an opportunity for charities to borrow in the retail bond market at exceptionally low rates. Allia Impact Finance, part of the Allia charitable organisation, reports record highs in trading prices for charity bonds on London Stock Exchange, showing that new borrowers can now expect to come to the market at rates well below 4%.
Retail Charity Bonds is a bond issuing platform, created by Allia, to provide flexible finance solutions for charities seeking to borrow £10 million or more. Three charity bonds have been issued to date – for Golden Lane Housing, Hightown Housing Association and Charities Aid Foundation – and all have seen trading prices rising sharply following the EU referendum.
Since each bond pays a fixed rate of interest, this means that investors paying a higher price will get a lower return on their investment. In part the rise in prices reflects the falling yields across financial markets, encouraged by the cut to the Bank of England base rate and its quantitative easing programme. But it is also an indication of the strong demand from the growing SRI (socially responsible investment) fund management sector, which is faced with a lack of suitably regulated mainstream investment opportunities.
Phil Caroe, Director of Impact Finance at Allia, said: “For charities looking to fund new projects or refinance existing debt, the current market conditions have created an opportunity to borrow at exceptionally low rates. The retail bond market provides a unique way to raise unsecured loan finance on very light terms, while also raising profile and connecting with a new pool of socially responsible high net-worth investors. Retail Charity Bonds offers charities a simple, flexible and affordable way to access this market for amounts starting from £10 million.”