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The Cambridge University rowing team, left, pulls away from Oxford University after Oxford lost a paddle during boat race on the River Thames in west London April 7, 2012. (PAUL HACKETT/Reuters)
The Cambridge University rowing team, left, pulls away from Oxford University after Oxford lost a paddle during boat race on the River Thames in west London April 7, 2012. (PAUL HACKETT/Reuters)

Cambridge University dips a toe in the bond market Add to ...

For over 800 years, students have eagerly sought places at Cambridge University. Now, partly thanks to Britain’s economic woes, investors are also knocking hard on its venerable doors.

The university has just issued its first bond, raising £350-million pounds ($560-million U.S.).

Ranked second in Europe and seventh in the world by Times Higher Education, Cambridge will use the money to add acres of teaching space and student housing to its towering spires and neat quadrangles.

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“There was a happy marriage of ambition and opportunity to raise a reasonable amount of money at very good long term rates,” Andrew Reid, director of finance at the university, told Reuters.

Borrowing on the bond market has become cheaper as central banks keep interest rates low to spur growth and steer the global economy clear of the euro zone crisis.

Investors will earn a return 0.6 percentage points higher for this AAA-rated debt than they would if they bought equivalent 40-year bonds issued by the U.K. government.

In return, Cambridge will get ready cash to build teaching facilities and accommodation in the north-west of the city for students.

“Cambridge’s strong name is part of its story,” said Georg Grdozki, head of credit research at Legal & General Investment Management.

“There is a good prospect that it will remain an attractive place for students from all over the world to study, meaning the revenue stream should be well underpinned even in volatile economic times.”

This is a new source of cash to add to the university’s traditional channels - donations, government funding, income from research and tuition fees.

A bond has been on Cambridge’s agenda for five years, but younger universities have stolen a march, and U.S. stalwarts Harvard and Yale sell bonds regularly.

The much lower-profile Lancaster University became the first U.K. institution to sell a bond in 1995, but the University of Oxford, Cambridge’s centuries-old rival, has no such plans.

Cambridge is not setting up a program to issue bonds again soon, but Philip Walker of the Higher Education Funding Council for England said all universities should keep their options open.

“Universities in England are independent institutions, they have always obtained funding from a variety of sources, both public and private,” Mr. Walker said.

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