Underwriters Reveal How They Boost Demand For Green Bonds

Green muni bond underwriters are stepping up marketing, with a focus on retail clients, as they compete for a share of the fledgling market.

Video: Green Bonds Capture Retail Interest

Brian Wynne, managing director and co-head of Morgan Stanley's public finance group, said the "intensive" marketing program for last week's Massachusetts green bond deal included extending the retail period to three days from the typical one or two, to reach all investors.

"We did a combination of one-on-one phone calls as well as meetings, and we met with five different offices in the commonwealth of Massachusetts, with representatives of the commonwealth, and had one on one meetings," he said in an interview.

Such marketing efforts have helped spike retail demand -- and therefore the overall demand -- for recent green bond issuances. Retail demand for the $370 million green bond part of a larger general obligation deal Massachusetts was stronger than other recent Commonwealth sales, Luke Hale, executive director on the syndicate desk in Morgan Stanley's municipal securities group, said in an interview.

Big Bank Marketing Strategies

William Daley, managing director in Morgan Stanley's municipal finance group, said in an interview that Morgan Stanley tapped into its wealth management network, including Morgan Stanley's Investing With Impact Champions, to generate interest for this green bond deal.

The group was formed by James Gorman, chairman and CEO at Morgan Stanley, who had outlined a strategy where over the next five years Morgan Stanley would gather $10 billion in green, environmentally friendly bonds and other sustainable assets.

"As part of this he formed a team of some of our best and most significant financial advisors to lead this, and those are the champions," Wynne said. "So in addition to the meetings within the commonwealth of Massachusetts, we also had a number of national meetings with this group, and they are basically the leading financial advisors of the firm, and some of the best producers of the firm."

A spokeswoman for JPMorgan Securities said it also markets the bonds from its green deals to retail clients.

"We've made retail marketing a priority for green bond offerings and have seen very strong participation among socially responsible individual investors through the J.P. Morgan Private Bank as well as through our retail affiliation with Charles Schwab," Jamison Feheley, managing director of public finance banking at JPMorgan, wrote in an email.

JPMorgan extended an agreement it has with Charles Schwab that gives Schwab access to more than 9.1 million client brokerage accounts, access to JPMorgan's new issue and secondary municipal bonds, and corporate debt securities this March. The arrangement had started in 2010.

When the affiliation was renewed, Peter Crawford, senior vice president at Charles Schwab said in a press release that "retail demand for access to this traditionally institutional product has exceeded our expectations.

"Our fixed income issuer clients have benefitted from exposure to one of the largest retail brokerage platforms in the country," said Paul Palmeri, head of Public Finance at JPMorgan in the release.

Wynne said for the Massachusetts green bond deal orders from traditional taxable investors and investors who buy both green bonds and traditional munis were increased. He said Morgan Stanley saw a "direct benefit of it being a green bond," and that the firm also observed investors purchasing the bonds just for the green bond portfolio.

More Marketing Could Be A Negative For Buyers

While the success of recent green bond deals and the upsized retail demand for the products do help the issuer, it might adversely impact the buy side.

More demand may lead to a "marginally better yield for the issuer, and marginally worse yield for the investors," Suzanne Buchta, global co-head of green debt capital markets at Bank of America Merrill Lynch, said in an interview.

"If [green bonds] became more expensive, we might have to pull back a bit," Benji Baily, fixed income investment manager at Everence, said in an interview about Everence Financial's Praxis Intermediate Income Fund, which Everence calls a green fund. "We have to meet the spread and risk of the other bonds in the portfolio."

Baily said that if his team had to tell investors they would earn less money, but have a positive impact on the environment, "it's a harder sell for us."

The popularity of green bond deals is also escalating the race between underwriters trying to get in on these deals.

"There is definitely competition out there - a lot of big banks are looking at green bond deals," Daley said.

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