Allia has decided not to go ahead with issuing its Future for Children Bond, but the charity has deemed the endeavour a success in learning.

While it is abandoning the bond, Allia told civilsociety.co.uk the scheme was not a failure because it has given it greater insight into how to make a social impact bond a success in the retail marketplace.

Future for Children (FfC) was planned as an eight-year bond with a minimum investment of £15,000 and planned to give a minimum return to investors of 100 per cent. It had a target of raising £1m.

The FfC Bond offered retail investors the protection of their initial capital, combining a low risk with a chance of an additional variable return based on the success of a social impact bond for Essex County Council, structured around a social programme to help children in care.

Market 'ill-equipped to understand social investment'

Allia chief executive Tim Jones told civilsociety.co.uk that the charity was testing the retail market’s appetite for investing in a social impact bond, and said that despite there being “a lot of expressions of interest” it would have been uneconomical to issue a special purpose bond.

Investors had to apply for the FfC Bond through a financial adviser, but Jones said that in practice advisers often felt ill-equipped to understand and promote social investment products and could not justify the costs of due diligence.

“You’re asking the IFA [independent financial adviser] marketplace to deal with a new thing: social outcomes rather than just financial outcomes,” he explained. “They have to try and make a judgement as to whether those outcomes are pertinent to their client, and do it in a context where the client hasn’t necessarily asked them for advice on such a proposition.

“It is difficult for people to make small investments in complex products when they now have to factor in the cost of financial advice and difficult, too, for product providers to allow small investments while at the same time screening out inexperienced, unsuitable investors.”

Retail social impact bonds 'do have future'

Nonetheless, Jones insisted that the FfC Bond has shown that there is a future for a social impact bond for retail investors, but “the route for distribution in that market needs more work”.

He said: “Our findings show that specific support from the Financial Conduct Authority might help the social investment market for retail investors to grow.

“We've made the first step on a journey – we’ve navigated part of the pathway but still don’t yet know how long the journey is.”

The FfC Bond was devised in such a way that the Essex County Council Bond to which it was linked would not be affected by its removal. The Essex Bond has already raised capital commitments of £3.1m from institutional investors including Big Society Capital and Bridges Ventures as well as charitable foundations such as the Esmée Fairbairn Foundation.

Jones also said that Big Lottery Fund, which awarded a £183,000 grant from its Next Steps: Supporting Social Investment in England fund, was happy because the FfC Bond achieved its learning outcomes.

A full report into the Future for Children Bond has been published by NPC and is available on its website here.

Jones revealed that Allia is next going to "try to establish the market behaviour of retail charity bonds" by bringing an electronic order book for them to the London Stock Exchange, working for a launch in the autumn.

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