Landmark new rules from the Financial Conduct Authority (FCA) that came into force last month will make it easier for UK companies to issue bonds that private investors can buy directly.
And while the measures should bring the UK rules in line with countries like the US, where households directly hold nearly $6.2tn (£4.5tn) in debt securities, translating regulatory change into real-world inclusion will require both a willingness from issuing companies, as well as broader efforts to arm investors with the education they need to make clear-headed decisions about corporate bonds.
“We’re already seeing interest from UK companies who are supportive of opening up capital markets in this way,” says Matt Thomas, head of Emea corporate debt capital markets at Barclays.
“We expect a number of these issuers to update their bond documentation to allow them to include retail investors in a sterling new issue in the future,” he tells Investors’ Chronicle.
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But just how soon this future may arrive is up for debate. Though the issuance of the first ‘access bond’ is eagerly awaited by the market, for now the major issuers have adopted a wait-and-see approach.
“I would be very surprised if people move quickly,” says Sarah Boyce, associate director of policy at the Association of Corporate Treasurers (ACT), whose membership represents 82 per cent of FTSE 100 companies.
As companies await a successful proof-of-concept before taking the plunge themselves, debut issuances are likely to emerge as a trickle rather than a flood.
Until now, bond funds have typically been the most feasible option for gaining exposure to UK corporate debt. For some investors, this is more than enough: funds are useful for diversification and come with the benefit of outsourcing much of the time-consuming due diligence required to the fund manager.
But for others, such as those who would prefer to actively manage their fixed income portfolio, buying a fund “lacks the excitement of understanding the story of a company,” says Stacey Parsons, head of fixed income at RetailBook and founder of the Investor Access to Regulated Bonds working group.
This speaks to the overarching spirit of the reforms – as chancellor Rachel Reeves seeks to channel a greater proportion of household savings into UK companies, it is hoped that the changes will contribute to a broader cultural shift, and spark a national interest in investing.
To support this, the London Stock Exchange has launched a new bond labelling system, which aims to provide a set of guardrails for both issuers and investors alike, by specifically defining the traits of the most straightforward, ‘plain vanilla’ securities.
While this is a good starting point, the task of assessing a company’s creditworthiness and understanding the returns profile of a particular bond is ultimately left to the individual.
That is where this column comes in. At this moment of increased retail inclusion in the debt market, there is no better time to get up to speed with the latest developments in fixed income. Our new monthly analysis, drawing on my prior experience in the banking world, will attempt to identify where the biggest opportunities for private investors lie.