How does U.K. Charities Turn to Bond Market?

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According to The Wall Street Journal, Greenwich Leisure Ltd. is offering some of its half a million or so members a quirky way to get a month’s free gym membership every year for the next five years: buy its bonds.

The London-based sports center-to-libraries operator is among a small but growing band of U.K. social enterprises and charities tapping the bond market to raise cash from investors who are seeking more ethical ways to generate returns.

It comes at a time when the U.K. government is cutting funding to local authorities, placing more of a burden on charities and other community organizations to step in and provide services that were previously offered by local councils. For social enterprises such as Greenwich Leisure, bonds are an attractive way to raise large sums of cash quickly when other financing options, such as bank loans, are limited.

“The market is slowly but definitely growing,” said Bryn Jones, a fund manager at Rathbone Brothers PLC, whose ethical bond fund manages about £132 million ($213.4 million).

Mr. Jones said his fund has been buying social housing bonds since 2002, but more recently, there has been a rise in deals from smaller charities too. Disability charity Scope came first in 2012, and this year has seen deals from Mencap, a charity for people with learning disabilities, and Midlands Together, which provides training and mentoring for ex-offenders. Two more deals, including Greenwich Leisure’s, are currently in the market. Mr. Jones says his fund is looking to buy some of the latter’s bonds.

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