UK’s Wellcome Trust joins small club selling a 100-year bond
One of Britain’s largest charities, the Wellcome Trust, has raised £750m of debt that it will repay in a century in the latest sign of investors’ enduring appetite for ultra-long bonds.
The 100-year bond drew orders of more than £3.3bn on Wednesday and came with a a coupon of 2.517 per cent, according to a person with knowledge of the deal. Wellcome is the second non-profit-making UK institution to bring a century bond to market, after Oxford University did so in December.
“The market is giving us the opportunity at the moment to borrow over the very long-term at a rate that I think we can be pretty confident that we can exceed in terms of returns over that period, that is our rationale,” said Nick Moakes, Wellcome’s chief investment officer. Unlike Oxford, which dates from the 11th century, Wellcome has been in existence for a shorter period of time than the period over which it is borrowing.
The foundation was set up with the bulk of the estate left by medical entrepreneur and philanthropist Sir Henry Wellcome in 1936. Its £23bn investment portfolio funds its charitable activities, supporting scientists and medical researchers around the world.
Global markets have seen a flurry of ultra-long bonds sold over the last year, including Argentina’s $2.75bn century bond last summer and a record €3.5bn 100-year bond from Austria in the autumn. Mr Moakes said that Wellcome’s investment strategy, which aims to see it “hanging around in perpetuity”, meant that the organisation naturally appealed to very long-term investors. Although the sale attracted a core base of pension funds and insurers, there was also “quite a spread” of overseas buyers involved, Mr Moakes added.
Wellcome is rated AAA stable by Standard & Poor’s and Aaa stable by Moody’s.
The price - at 80 basis points above a UK government bond maturing in 2068 - was tighter than that of Oxford’s bond, which priced at 85 basis points over the same bond. We should “give some credit to Oxford,” Mr Moakes said. ““We saw what they were able to do and hats off to them, that sparked our interest in going ultra-long.” Wellcome has previously issued four bonds, raising £1.6bn. It first entered the capital markets in 2006 and the longest maturity debt it has issued so far is a 40-year, £400m bond in 2014.
In each case the money raised was spent on its charitable work, and the repayments will be made from proceeds generated by its investment portfolio.
Although Wellcome’s bond will mature in a century’s time, its duration - the period of time that it takes for investors to recoup their money - is around 40 years. However, this is still one of the longest durations available to investors, according to Fraser Dixon, an executive director at JP Morgan, which acted as bookrunner on the deal.
“Especially at this end of the credit spectrum and in a context in which interest rates are historically very low and the DMO (UK’s Debt Management Office) isn’t issuing at maturities longer than 50 years, people see a real opportunity to buy ultra-long dated debt for duration reasons,” Mr Dixon said.
“There are a lot of pension funds looking for duration to match the very longterm liabilities on their balance sheets, and that is a rare commodity.”