Savers can now actively participate in the fight against the coronavirus by investing in a “Covid-19 response obligation” via investment funds.
The first social response bonds were issued in March by various institutions and public agencies as the virus spread hard and rapidly across the world.
The means to invest directly in these bonds – which are designed to deal with the coronavirus epidemic and its economic repercussions – are still relatively limited for personal investors, although investing through a bond fund is a quick and easy option. easy.
Savers can now contribute to the fight against Covid-19 by investing in “response bonds” via a bond fund
But these obligations are different from investments in companies in sectors such as health, which have indeed helped fight the pandemic by playing a vital role in the search for a vaccine.
Instead, the bond proceeds are purely focused on resolving the health crisis and helping sectors and communities suffering from the economic impacts.
Many have been started by development agencies and other organizations, and as a standard bond, they require investors to lend them money in exchange for a fixed interest rate over a set period – and their initial investment at the end.
The £ 1.5 billion Rathbone Ethical Bond fund, managed by Bryn Jones and Noelle Cazalis, has bought such bonds in order to fight the pandemic while adhering to their own ethical investing approach.
The past few months have seen the impact of the virus, combined with a strong desire by investors to support improving the environment and society to bring interest in responsible investing to record levels.
According to the Investment Association’s cash flow statistics for April, responsible investment funds posted record net retail sales of nearly £ 1 billion.
Cazalis said social bonds are “perfectly suited” to what their fund is trying to accomplish, and where finance can really make a difference and help define social responsibility.
What is a Covid-19 response bond?
Noelle Cazalis is Deputy Director of the £ 1.5billion Rathbone Ethical Bond Fund
The Covid-19 response bonds were created to finance projects aimed at fighting the coronavirus epidemic,
It remains a threat to the well-being of the world’s population, while millions of people will also suffer from the economic downturn and the social isolation it has triggered.
Some could be described as social bonds, which are “the strictest in terms of transparency,” Cazalis says, while others are called sustainability bonds.
Both are regulated instruments subject to the same capital and financial market regulations as other listed fixed income securities.
Strong global collective action is essential to end the pandemic and the Covid-19 Response Bonds, the first of which were issued in March, stand ready to play a crucial role in those efforts.
One example is the African Development Bank’s Covid-19 Response Obligation – a three-year social obligation – for those in need of medical assistance in Africa, and in which the Rathbone Ethical Bond Fund is invested.
Cazalis said: “This is very important, not only for coronavirus cases, but also to ensure that vaccination programs do not fall behind.
“For example, in Nigeria and Cameroon, polio cases are on the rise because children are not receiving vaccines, as staff have been diverted to the response to Covid-19.
“In a similar vein, we bought a bond from the Inter-American Development Bank – a five-year bond – to help the response across Latin America and the Caribbean. We also bought a bond from the World Bank, where the focus is more global. ‘
Who issues them and who invests in them?
Demand for Covid-19 response bonds has been strong, with the new market already reaching $ 65 billion at the end of May and that number is only continuing to rise.
Cazalis added: “They tend to be issued by very strong institutions such as development banks and international organizations, so from a credit risk perspective it’s as good as it gets – which has helped performance in uncertain times. “
Issuers range from the International Bank for Reconstruction and Development to the World Bank to the European Investment Bank and the response and demand is positive.
The African Development Bank managed to raise $ 3 billion in just a few months while Bank of America entered the market last month with a four-year $ 1 billion Covid-19 bond, paying a yield of 1.3 percentage point higher than benchmark T-bills.
According to Morgan Stanley, a combined $ 32 billion in social and sustainability bonds were issued in April, and most were designed for Covid-19 response initiatives.
After that ?
According to the analysis of AXA, which has invested around 230 million euros in coronavirus bonds in its fixed income portfolios, the market is expected to exceed $ 100 billion by the end of 2020.
Cazalis said she expects to see more investment opportunities in the market and buy more for her fund.
“I think we’ll see more corporate shows over the next six months. It’s something that I watch closely, ”she said.
“I hope they will follow the trend of green bonds over the past few years and become established funding vehicles for treasurers.
“Many bond funds have record cash levels and new issues are oversubscribed, so I’m sure more issues would generate interest.
“Crises throughout history have led to periods of disruption, innovation and, ultimately, drastic change. I think this one won’t be any different, and I think we’ll see ESG investing come out stronger. ‘
The Kames real estate fund builds a Covid-19 recovery center
The team behind the £ 500million Kames Target Healthcare Property fund has played their part in the fight against the coronavirus by allowing one of its farms to transform into an emergency care center.
Kames’ The British Real Assets team worked with the NHS and the British Army to transform one of its social care properties into a recovery center for patients recovering from Covid-19 hospitalization.
Many Covid-19 patients who have been in intensive care and on ventilators find their path to recovery includes longer-than-expected medical care. and therefore have to go to nursing homes due to secondary health problems related to the fight against the virus.
One of the social care properties the fund owns in Essex was finalizing a lease when the coronavirus pandemic hit and stalled negotiations.
At this point, the NHS asked if the facility could be rented to them as a care center for coronavirus patients. As a result, a transaction that typically takes two years took two weeks to complete.
Anne Copeland, co-manager of the fund, said: “We were delighted to be able to step in and use our experience in this area to bring this essential project to fruition.
The Kames Target Healthcare Property Fund team assisted the facilities, regulatory approval and legal documentation teams, and the British military was called in to help prepare the building to house patients with post-ICU coronavirus. .
‘The team hopes this successful pioneering collaboration will pave the way for more such agreements as we all work together to tackle the pandemic.
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