Investment Focus Midlands Together CIC Social Impact Bond

Written by Editorial Team
06 August 2013 / by Oliver Roylance-Smith
With so little in the way of positive news coming from the economy and investment landscape, it is good to know that there are still new and innovative investment opportunities available if you look hard enough. We take a look at a new Bond Issue which is designed to combine fixed investment returns with making a social impact. There is also the option to benefit from a relatively uncommon tax break called Community Investment Tax Relief, eligible against income and corporation tax liabilities.

Social Impact Bond Offers up to 15.1% p.a. using tax breaks

Socially responsible investment and competitive returns are not always phrases that are found in the same sentence, but a recently launched new investment opportunity may be an exception. Launched in partnership with ethical bank Triodos, under the leadership of CEO Richard Nicol, the Midlands Together Community Investment Company (CIC) Bond aims to address some of the obstacles faced by ex-offenders when seeking employment after the end of their sentence. The money raised will be used to provide training and employment opportunities in the Midlands to some of the 58.2% of adults serving short-term prison sentences who go on to reoffend upon release (source –  30/07/13).

A worthwhile investment

Many ex-offenders lack training, experience and skills to enter the workplace, as well as facing social and personal challenges to gaining employment. With the odds stacked against them, many ex-offenders find it all too easy to drift back into their previous lifestyle on leaving prison. Midlands Together aims to provide paid work for ex-offenders and equip them with the skills they need to secure permanent jobs, helping them break out of the cycle of reoffending.

The estimated £3m raised from the bond will enable Midlands Together to purchase over 70 derelict properties in the West Midlands, train ex-offenders in the skills needed to renovate them, and then sell them at a profit. One of the main social impacts is the employment, training and mentoring of ex-offenders in the repair and restoration of the properties since at least £2m is intended to cover the cost of up to 150 ex-offenders over the five-year period of the bond. As well as having the potential to change the lives of ex-offenders, this investment will help to restore local communities and provide housing by making good use of properties that are currently unoccupied and unusable.

Paul Harrod, who founded the company’s sister initiative in Bristol in 2011, expressed optimism about the future geographical growth potential of the business model, commenting that: “This is a wonderful opportunity to develop our work throughout the Midlands. We have a CEO with great ability, passion and enthusiasm. I look forward to supporting Richard as he leads the capital fundraising over the next few months.”

Competitive returns and community investment tax relief

The Midlands Together CIC Bond isn’t just about social responsibility – it also offers the potential for a competitive return. The bond requires a minimum investment of £20,000 and offers an annual fixed return of 4% or 6% depending on whether you go for the Series A or Series B Bond.

The Series B Bond is also eligible for community investment tax relief (CITR) which is worth up to 25% of the investment made, meaning a gross return of 14.3% for 40% taxpayers and 15.1% for 45% taxpayers. The relief is spread over five tax years (5% each year).

Key risks

The Midlands Together CIC Bond is a retail bond, which means that the company aims to pay you a fixed level of interest each year for a set period (in this case, five years), plus a 100% return on your capital at the end of the term. You need to be able to tie up your capital for five years in order to invest, as well as accepting the level of risks involved – the main risk being the loss of your initial investment. You should note that the bond is not covered by the Financial Services Compensation Scheme, so in the event of a default you would not be able to make a claim.

The Bond is an unquoted security and will not be traded on a recognised investment exchange so potential investors should be able to commit for the full term. Repayment of capital is dependent on the success of the business model and Midlands Together CIC’s means of potential refinancing so investors should be prepared to lose some or all of their investment in return for a fixed rate of interest.

Fair Investment’s view

Commenting on the investment, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company, said: “The Midlands Together Community Interest Company (CIC) 2013 Bond Issue offers investors the opportunity to receive a fixed level of interest over five years while investing in a business model designed to have a social impact.”

He continued, “With such high unemployment generally in the UK, this initiative is to be applauded and the operating framework of the working model has already been piloted successfully in Bristol. The eligibility of Community Investment Tax Relief will no doubt appeal and the ability to combine potential investment returns with a social impact is hopefully one that will grow in the UK although due to the risks associated with the Bond it should only be considered by those who have investment experience.”

This investment is open to individuals, companies, charities and trusts.

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek professional advice.

This is a Community Interest Company (CIC) Bond that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. Repayment of capital is dependent on the success of the CIC’s business model and means of potential refinancing, neither of which is guaranteed. There is a risk that the company backing the bond may be unable to repay your initial investment and any returns stated and so you may not get back the full amount originally invested, even if the bond is held for the full term.  Investment is an unquoted security and is therefore speculative and can involve a high degree of risk. This is an illiquid investment that cannot be traded and as such is designed to be held for the full term. Eligibility of tax relief is dependent on ongoing tax legislation and your individual circumstances and may be subject to change in the future.

© Fair Investment Company Limited