Pressing forward through uncertainty

In our ‘Meet the Impact Manager’ guest blog series, we hear how some fund managers in our portfolio have been responding to COVID-19. This week, Phil Caroe, Director Deal Execution at Allia C&C, shares how they successfully closed a charity bond investment amidst the pandemic and the challenges their clients face with securing investment.


Written by

Phil Caroe, Director Deal Execution, Allia C&C

There are certain times that aren’t suited to launching a public investment offer, like in August or over Christmas. From experience we can now add to that list, ‘in the face of an impending global pandemic’.

We started working with The Alnwick Garden Trust at the end of 2019 to raise £10 million for them through a listed charity bond. By the time we announced the roadshow in mid-February the first few COVID-19 cases had been seen in the UK, but in the following days the global news was growing worse and financial markets started to fall dramatically.

However, the Trust couldn’t delay; it needed to have the money by the end of March in order to secure a matched-funding grant. So, having agreed the final terms, we pressed ahead with a launch on 4 March in the midst of the worst market turbulence since 2008. It was an eventful week. Just a few days after launch the FTSE 100 plunged by more than 8% and the yields on US Treasury securities hit record lows. We had orders for the bonds being placed one day and withdrawn the next. But with the support of a number of committed investors in charity bonds, we made it over the £10 million mark and closed the offer on the 13th, nine days after launch.

Life must go on

In the months since then, we’ve seen a number of our clients delay their plans amidst challenging circumstances. However, many of our clients are at the heart of the storm and need funding to provide care and protection for the vulnerable. And after the initial shock, others are now pressing forward with their long-term growth strategy, acknowledging that COVID-19 won’t be here forever.

Over the summer we launched an offer of ‘core capital deferred shares’ (CCDS) for Ecology Building Society that successfully raised £3 million. The issue makes them the third (and the smallest) building society to raise new funds through CCDS after Nationwide and Cambridge Building Society. The funding will count as part of their ‘tier 1’ capital, which is the highest risk element of the capital that banking firms are required to hold to be able to absorb unexpected losses. The amount of core capital a firm needs is calculated in proportion to its loans, so having an additional £3 million through the CCDS will allow Ecology to make substantially more loans to ecological and community projects.

Living with uncertainty

It remains however a challenging time to secure investment. Investors aren’t necessarily opposed to risk, as long as they can quantify and price it. But what they find difficult is uncertainty – about both how the business wanting investment might perform and what’s going to happen in the market generally. We’ve seen this especially with our care sector clients. While charitable care providers have fared better through the crisis than some other providers, the nervousness about the sector generally has meant that many of the mainstream banks have been unwilling to consider new lending, even through the Government’s Coronavirus Business Interruption Loan Scheme (CBILS).

Funding the care sector is a serious challenge. Some form of prudential regulation, similar to the social housing sector, might encourage more lenders to fund care, but that is a plan for the long term. We need shorter-term solutions.

One way to address uncertainty could be through the use of guarantees. A report by the Global Impact Investing Network in 2017 looked at how guarantees have been used in the US to support the community investing market, including in the areas of housing, healthcare and energy efficiency. It concludes that guarantees “offer exciting ways to stimulate increased private-sector investment in solutions to social and environmental challenges”. There is an opportunity for a transformative role to be played here between foundations and Government, and while the use of guarantees may be impacted by the state aid debate around Brexit and Government finances more widely, the impact of COVID-19 is starting to generate interest in their potential.

At the same time, it is important to continue working with institutional investors and to grow the number committed to responsible investing. This doesn’t mean we should ask or expect them to make sub-commercial investments. But a commitment to responsible investing may involve taking the time to understand social organisations and their business, and recognising that the highest social impact may be delivered by relatively small organisations who need smaller investments in a form that might not be entirely standard and conventional.

Change may be slow, but there are encouraging signs of progress. The increased profile of ‘Environmental, Social and Governance’ (ESG) criteria in mainstream investment has certainly been very helpful. When we launched the RCB platform in 2014 to issue listed bonds for charities, there was often a perception that ‘charity’ and ‘business’ weren’t compatible. Today, our growing group of committed investors knows that many organisations with a social mission are determined to increase their impact by being profitable, long-term businesses.

You may also be interested in