The $31 billion QBE investment portfolio is to place $100m in social impact bonds in the belief that opportunities for such investments will expand greatly in the years to come.
It is part of a general move to diversify assets in the QBE portfolio, which until now has been dominated by developed world government and corporate bonds.
Gary Brader, chief investment officer of QBE, is in discussions with organisations bringing social impact bonds to market in the US, Canada and the UK and has already made a social impact investment in Australia.
Social impact bonds invest in projects such as low cost housing, which local governments lack the funds to build themselves. In what is a relatively new asset class, the first recognised social impact investment launched in 2010. All investments are different in structure and risk, as new approaches and ideas are being trialled. “Sometimes they will look like high grade fixed income sometimes they look like alternatives with a high equity pay off,” said Brader.
He describes the fund’s Australian investment as paying a fixed yield and having a capital guarantee from a AA rated entity.
Other Australian investors are also looking at this space.
Richard Brandweiner, chief investment officer of First State Super, is currently in talks with organisations seeking to set up social impact investments.
“We want to take a proactive stance and help develop the structures that we think can solve some of the challenges that have limited the institutional appeal of impact investments to date,” he said.
The $850 million Christian Super fund has been an early mover in social impact bonds and views the entry of such larger funds as potentially crowding out the market for other investors. Last year, it invested in the $7 million Newpin Social Benefit Bond, which provides funding for a program that supports children in out-of-home care to be restored to their families, or prevents at-risk children from entering care.
Tim Macready, chief investment officer at Christian Super, said the involvement of First State Super and QBE would represent a significant inflow of capital into a small market.
“Certainly that amount focused on Australia alone would drown the market. Hopefully it has a catalytic effect, rather than a crowding-out effect.”