Millennials show increasing interest in impact muni bonds
WASHINGTON — Millennials have an appetite for a slice of the muni bond market when it comes to investments in affordable housing, education or sustainable energy, something experts say is part of a trend of younger investors increasingly seeking those kinds of investments.
The size of the global "impact investing" market doubled in the past year, from $114 billion to $228 billion in assets, according to a 2018 annual survey by the Global Impact Investing Network and a younger generation is becoming more interested. This growth is being in driven in part by a generation of millennials who are twice as likely as older investors to make investments targeting social or environmental goals, according to a 2017 JPMorgan study.
As of 2018, 77% of millennials have portfolios that include impact investments.
The trend has caused some industry professionals and issuers to provide more concrete information to guide the young investors to make environmentally and socially impactful decisions.
As more and more millennials are coming into the market, investment firms are more vested in creating sustainable portfolios, said James McIntyre, director of capital markets at New York State Housing Finance Agency, or HFA. The agency issues bonds and offers financing for both for-profit and not-for-profit developers looking to build and maintain affordable housing.
In a December deal, the agency had a record amount of retail investor participation. McIntyre said though millennials may not necessarily have been huge participants, the agency is focused on engaging with retail investors by providing more disclosure.
The agency provides information near the beginning of its official statements when issuing bonds and includes information such as area median income or specific types of housing .The agency has also made it a point since the increase in retail investor participation to make terms easier to understand.
It is about to launch a new investor relations website as well, which will be linked to the Municipal Securities Rulemaking Board’s site.
“All in all we’re trying to create a connected environment of disclosure as well as a more transparent position with the market,” McIntyre said. “We believe that it’s one of the big characteristics of millennials and younger people is that they want to know. We’re trying to undo the black box when it comes to understanding the ability to invest in projects.”
Eva Arevuo, director of communications at Neighborly, said she thinks of municipal bonds as the original impact investment and sees millennials increasingly interested in them because they can finance impactful projects like affordable housing, homeless outreach programs, new schools — all of which are tangible, she said.
Neighborly is an investment platform that connects communities with investors interested in funding public projects.
Historically, muni bonds have been sold to high net worth individuals and soon to be retirees because they are a long-term tax-advantaged investment, Arevuo said. But Neighborly is trying to attract younger investors by highlighting the social value of muni bonds.
The young generation is familiar with crowdfunding through platforms such as GoFundMe or Kickstarter, and are now realizing they can invest in public infrastructure projects and get a return, Arevuo said.
“These young people who would have otherwise donated to a charity can now actually buy those bonds and are still investing in the things they care about, pushing forward the impact they care about, but they’re generating returns as well,” Arevuo said.
Instead of buying general obligation bonds, where the exact uses of the money aren't always clear, younger investors look for other programs like the ‘No Place Like Home’ program in California Arevuo said. It uses municipal bonds to finance a program to address homelessness.
“We expect the trend of millennial investing to continue,” Arevuo said. “There’s nothing to say that impact investing is going to go down in popularity. It’s only going to increase in popularity.”
Matt Posner started the Municipal Impact Coalition in January 2018 as an open source resource for investors. He is anticipating the growth of the millennial investor over the next 10 years.
The coalition works with underwriters, investors and state and local governments to analyze public infrastructure projects and provide information on them. They score projects based on set categories such as environmental soundness, quality of nearby public schools and overall personal economical growth.
If young investors want to contribute part of their portfolio to housing projects, the coalition provides in depth information to help them make a decision. Based on U.S. Environmental Protection Agency data, the coalition can tell investors if buildings have lead paint, a history of asbestos or are near areas that have a history of lead poisoning.
Posner also looks at the quality of nearby public school systems to make sure students living in the new housing are attending a qualified public school.
“We’re providing a lens in which investors now have a better sense of how their dollars are impacting their community,” Posner said.
Millennials put an emphasis on social and environmental issues, instead of just investment return, said Kayla MacEwen, director at Hilltop Securities, a financial services firm for municipal issuers, broker-dealers and other individuals.
She entered public finance because she wanted the feeling of working towards something that benefits the public and is tangible. Millennials are looking for a "connection," MacEwen added.
“Public finance gives you the feeling that you’re working towards something that benefits the public and you feel like you have a connection, whether it be us as public finance professionals and the financings or as an investor’s perspective and their investment,” she said. “So I think that’s definitely something that millennials are focusing on.”