The $152.5m (€125.7m) emerging markets social bond Alecta bought into this week was more than six years in the making, according to arranger Danske Bank, which hopes to put similar instruments together given high demand from other institutional investors.
Patrik Hökfelt, who has been heading up the project at Danske Bank, told IPE: “We had been discussing this for five or six years when we started the work on what ended up being this transaction.”
During that time, he said, a lot of ground was covered, and the work had not begun with the idea of a social bond.
“I would say that throughout, investor interest has been high. We had many who would like to have participated, but the complexity involved in doing this for the first time was a bit too much for a first-time investor in a social bond,” he said.
Alecta revealed yesterday that it was investing $100m in the new blended finance social bond called “Financing For Healthier Lives”, with proceeds aimed at health, financial inclusion and renewable energy and other types of project in Africa, Asia, Latin America and Eastern Europe.
Swedish company AFA Insurance is taking up the remaining $52.5m of the listed issue.
The asset manager is responsAbility, and Sida, Sweden’s government agency for development cooperation, has guaranteed the first 25% of any losses.
Hökfelt said he believed it was the first time the agency had guaranteed in a bond packaged in this way.
“We needed something that was investable, a solid investment where you get a good risk-adjusted return,” he said.
“The interest for that is huge in Sweden, but you also need to be able to package it in ways so it fits the investors’ policy, and their mandate also has to be configured so that it suits, and there also needs to be a portfolio where it fits in,” he said.
Normally, Hökfelt said, this kind of financial structure would be higher risk but also higher return.
Danske Bank wants to make this type of bond investable for a broader range of investors, according to Hökfelt. While this bond was specifically targeted at Swedish investors, he said that in its next steps, the bank would be going to Nordic investors more broadly.
“It’s a question of finding the right place for the investors for this, and that might take a little bit of time for them,” he said.
Impact investment was “a necessity” these days, he said, with the world in the state it was.
“Whether you look at poverty or health – it is impact investments that the world needs, so of course that is what we need to look at,” he said.
The two investors in the bond had contributed a lot to its creation, Hökfelt said.
“AFA and Alecta have throughout the process, with their expertise and knowledge, been able to guide us to some extent in finding the format where they get the risk-adjusted return they want.
“Sida has enabled the risk to be manageable for the investors, and then responsAbility has been vital, having the impact expertise that they do,” he said.