Types of Social Investments

What are the types of social investment?

- Senior Debt - a charity can incur senior secured or unsecured debt. This would extend from short-term working capital to 40-year mortgages on properties.

- Junior Subordinated Debt - With an intercreditor agreement, this can slot in beneath senior debt with repayment only after the settling of senior obligations. Interest rates might average 8-9% for small charities versus 5-6% at the senior level.

- Charity Bonds - This looks like a corporate bearer bond with annual coupons with a standard bond documentation. The issuer is a regulated charity or social enterprise. Liquidity of the bonds is often low, and the overall market remains small with £135m outstanding by end-2017.

What other forms of finance do charities have access to?
- Social Impact Bonds (SIB) - The commissioner defines outcomes to deliver an improvement in the chosen cohort. For example in prison offenders. The commissioner will often be a local authority or government department. However, with SIBS, the structuring and legal costs are high and need to be spread over a significant size of loan-bond.
- Development Impact Bonds (DIB) - This is similar to the SIB but uses PBR in the context of development projects. Commissioners might be supranational development banks and outcomes might be linked to improved agricultural initiatives or climate change impact. However, lead times on these deals can be slow with FX and legal complications.
- Community Share Issue (CSI) - These are equity units issued by a community benefit society that allow individuals and institutions to invest in a local enterprise. They are normally raised in small denominations with a maximum single investment (up to £100,000) using a crowd-funding platform. The shares are technically redeemable with notice. The CSI’s pay a rate of interest typically in the range of 2 to 5%.
- Revenue Participation Agreements (RPAs) - A loan that receives a rate of return based on some performance milestone (typically revenue based). This is an attempt to construct quasi-equity in the not-for-profit sector.

Stuart spent 23 years working on the fixed income side of finance, in London and New York. He covered bonds, derivatives and leveraged finance. Stuart also worked as a university teacher and researcher publishing books and articles on economic and political history. He moved into social investment two years ago.

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