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Sweet charity

Charitable giving has always played a part in financial planning at the high-net-worth level but a growing number of investment products featuring a charitable aspect are creating a wider need for advice in this area.

One method of investing and giving at the same time has been via bonds. The bonds are not only available to institutional and professional investors but to retail as well. Immunisation bonds are perhaps the most recognisable of such products. These bonds are backed by various governments, including the UK as well as the World Bank, and used to fund immunisation programmes in some of the world’s poorest regions.

The first issue of the International Finance Facility for Immunisation bond was in 2006 with subsequent offerings in various countries, including a sterling version in May 2009. The retail tranche of the sterling bond was packaged into the HSBC vaccine investment plan Isa. So far, International Finance Facility for Immunisation bonds in issuance have raised more than £1.05bn.

More recently, a London-specific bond is to be launched by national charitable organisation Citylife. The East London bond has a credit rating of Aa3 from Moody’s.

The way it works is by providing a combination of grant funding and capital loans. For example, on an investment of £1,000 around £200 will immediately go to charity while the rest will work to create affordable places to live. If the East London Bond raises £10m, 80 per cent will be lent to Places for People Homes, a not-for-dividend registered provider of social housing, which will repay the loan, with interest, after five years.

The downside of this type of arrangement is that the Government’s Gift Aid programme does not apply as the interest that accumulates on the investment is already tax-exempt.

From a fund perspective, there are few options for retail investors who want to combine charitable donations and making their money work hard. The multi-manager Invest & Give fund launched in July last year while for professional investors or HNWs there are a few hedge funds and private equity vehicles that operate on a charity basis.

Earlier this year, Anglo Dutch investment group Aros started offering UK institutional investors the opportunity to invest in a fund aimed at providing social benefits. The portfolio, Aros Altru, is a UK-managed, closed-ended, private equity, global altruistic opportunities fund. Aiming for mainstream equity returns of around 8 percent, the fund invests in “social enterprises” and smaller companies which may make a sustained social impact in their communities.

Retail fund Invest & Give has a different approach to the theme of charitable giving. Instead of placing money with companies to the potential benefit of that community or economy, the portfolio gives up a portion of its fee to the Prince’s Trust. The fund has been marketed solely to direct investors until recently but the fund’s distribution is changing direction with a push towards the intermediary market.

Invest & Give head of distribution Angus Duncan says the fund has appeal for advisers because they can assist with a client’s overall financial plans, of which charitable giving plays a role. Invest & Give is managed by North CEO John Husselbee and supported by 12 different product providers, who discount their normal fees if their funds are included in the portfolio. There is no firm commitment from Husselbee to buy the sponsors’ funds, although currently around half the portfolio is invested in their products.

The fund features a TER of 2.25 per cent, which includes a 60bp donation. At the moment, the fund is only available on select platforms, such as Transact, but Duncan said that is likely to soon change as he is in talks with others to get the fund distributed. The platform costs work differently, although the TER is the same, as transparency is needed on who is doing the actual gifting, which can be difficult via platforms. In the A-share class investors can put the donation portion down on their tax return whereas via a platform gross income to the investor is reduced by the amount of the donation.

The benefits of charitable funds are not in doubt but there is some scepticism over costs. Duncan noted investors in Invest & Give pay no more for the fund than comparable multi-manager products even with the inclusion of the donation. The main difference in cost is to the adviser, having just 25bp of trail commission on offer, but after the RDR that could be less of an issue.

Other funds may have a different approach to costs. Being a specialist, private-equity type vehicle it is no surprise the Altru fund features a high annual fee at 2.5 per cent but it also features a 10 per cent performance fee.

Performance-wise, many of these portfolios have not been going long enough for investors to see the worth beyond the charity aspect. Invest & Give, which is in the IMA balanced managed sector, has not yet obtained a one-year track record, although over the six months to April 7 it has returned 10.3 per cent.

Withers HNW advisers and law firm partner Christopher Groves says he has noticed an increased interest in giving by clients. He noted that such is the increase in philanthropy at all wealth levels, that many financial advisory firms are starting to employ specialists in this field to help clients out, adding it as an extra service.

Groves said the fund option of making donations may suit some clients as the all-in-one package takes some of the decision-making away. There are obvious tax considerations under the Gift Aid programme, Groves does not believe it should play a role in making the decision to give or not. “It should always be about the benefit of the charity but we do need to recognise that sometimes people need some encouragement.”

There may be more efficient ways to donate than via a fund but Groves said it does present a way to generate interest and has a feeling of getting something for nothing.

Duncan noted that while at the moment the fund gives to the Prince’s Trust, its success could lead to other funds tying to other charities or charities setting up similar products, expanding this universe.

With philanthropy on the rise and advisers having greater access to investment vehicles that encourage charitable donations, Groves says it should be a win all round.


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  1. Great to see the International Finance Facility for Immunisation (IFFIm) mentioned in your article. In fact, IFFIm has now raised US$ 2.6 billion for global immunisation programmes run by the GAVI Alliance. More than half the investors in IFFIm’s “Vaccine bonds” are retail investors in the UK through the HSBC Vaccine Investment ISA and Plan but especially in Japan where individuals have invested in IFFIm bonds to the tune of US$ 1.2 billion.

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