The ‘Future for Children Bond’ – nice idea, but a risky investment

Do you want to put your money to work for good, but also be sure that you don’t lose any money either? And somehow give without actually giving? Then I’ve got a deal for you. This week saw the launch of yet another social investment proposition – the Future for Children Bond. This comes from charitable investment organisation Allia, and it works like this.

You hand over your cash (minimum subscription £15,000) for eight years. The money is then divided and invested in two separate things. The majority of the capital (78%) will go into a “low-risk ethical investment in social housing”. The remainder (20%) into a “high-risk social impact bond” (SIB). That means it will be used to support a programme in Essex that intervenes in “at risk” families and supports them at home with a view to keeping their children out of care.

The social housing investment will provide a set rate of interest that, compounded, will add up to 100% of the original nominal capital over the eight years. So you should get that bit back. Real returns are another matter.

The idea is that Essex County Council pays out a return based on “the reduction in days spent in care by these children, as well as improved school outcomes, wellbeing and reduced reoffending”, although as far as I can see, the drop in days spent in care is the key variable.

This all sounds nice. But the point we need to make is that, as an investment, it doesn’t really meet any of the criteria we normally look for. You have to lock you money up for a long, long time with no knowledge of what your return might be. There is clearly a strong chance you will get back only your original capital (and that’s assuming nothing goes wrong with the “low-risk” bit).

That’s not a good thing, for the simple reason that even if inflation stays lowish at 3%, £100 will be worth only £78 in terms of purchasing power. You just lost £22 (not including costs). Nor is it particularly transparent (the “how returns are determined” section of the offer document left me none the wiser).

It isn’t cheap either. You’ll have been wondering what happened to the last 2% of your capital. That’s Allia’s take. You might still want to invest and perhaps, as Anthony Hilton, writing in the Evening Standard, does, you will take heart from a recent poll by JP Morgan that found that the “vast majority” of such social projects were “meeting or surpassing their social, environmental and financial targets”.

But don’t invest in this thinking that you aren’t taking vast – and vague – risks. You are, and as a result you might just find that – as is usually the case – it isn’t possible to give without actually giving something away.

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