PLY: One Easter down, one to go as we’re mid-way through Passover and there is so much to be read today that I don’t want to prevent you from getting on with today’s crisp digest of delectable stories:
4 Ps Of Pay For Success: Program
Eileen Neely & Brian R. Nagendra – Living Cities
As we continue our series on the 4 Ps of Pay for Success (PFS), we explore the core outcome of a PFS transaction, whether or not a “Program” can produce and measure impact.
Previous article here.
The Social Net Worth: Australia Taps Bonds For Welfare (subscription)
Rebecca Thurlow – Wall Street Journal
Plans by Australian state governments to save money by keeping people out of jails, hospitals and foster care are creating an opportunity for yield-hungry investors via social-impact bonds, the first Asia Pacific nation to do so.
It could mean a yield of as high as 12% in a given year, compared with as little as 2.3% for 10-year Australian government bonds currently. Governments pay the coupon, as well as repaying the principal when the bond matures.
In Defense Of Financial Innovation
Andrew Palmer – Foreign Affairs
Finance has stepped in with answers to both the funding problem and the shortfalls of planning and monitoring. One innovative tool, known as a social-impact bond, channels private investment to programs that track measurable social benefits. For instance, a social-impact bond focused on rehabilitating prisoners might monitor the number of new convictions of former inmates one year after they were released from prison. Fewer repeat convictions means less spending by the government, which can then use the cash it saves to pay back investors. The first initiative of this kind was introduced in 2010 by the city of Peterborough in the United Kingdom, and that program has already reduced reoffending rates vis-à-vis the national control group. Other countries, including the United States, have introduced similar programs of their own. New York City launched a social-impact bond in 2012 focused on adolescents incarcerated at Rikers Island; the program counts Goldman Sachs as an investor. And Massachusetts has announced two social-impact bonds, one of which will fund a seven-year effort to reduce prisoner recidivism with a budget of $27 million.
The reason finance has a shot at solving problems of such complexity is its ability to align the incentives of diverse market participants—in this case, governments that commission services, social organizations that provide them, and investors that supply capital. Governments are attracted to social-impact bonds because they require payouts only when the programs they fund achieve results. Social organizations come on board because these initiatives involve private investment with longer time frames than federal contracts usually offer. And investors benefit from detailed data on how well the programs are performing. Social-impact bonds will never be the only answer to the shrinking state. But they are an extremely promising avenue to explore.
Garcia Slams Emanuel’s Prekindergarten Initiative
Steve Bogira – Chicago Reader
Outside a south-side child care center, Jesus “Chuy” Garcia yesterday blasted Mayor Rahm Emanuel’s use of social impact bonds to fund an expansion of prekindergarten in Chicago.
Garcia, the Cook County commissioner who faces Emanuel in a runoff election Tuesday, said the pre-K deal was more likely to enrich the politically connected lenders who have contributed to the mayor’s reelection campaign than it was to significantly expand pre-K.
The mayor’s initiative, approved in November by the City Council by a vote of 42-5, is designed to enroll 2,600 children in half-day pre-K over four years. Goldman Sachs, Northern Trust, and the Pritzker Family Foundation provided $17 million in bonds, and could ultimately get $34.5 million back.
County Tries ‘Pay-for-Success’ Funding Model For Public Housing
Jennifer Wadsworth – San Jose Inside
Santa Clara County has taken an unusual tack in funding a housing initiative, testing what it calls a pay-for-success model that leverages private funds for public service.
Under a contract with Abode Services to provide shelter for some of the region’s chronically homeless residents, the county has agreed to pay only if the nonprofit delivers results. In this case, that’s the physical stability and mental wellness of homeless clients.
The idea is to emphasize outcomes—like housing stability and wellness—over units of service.
Some call these types of agreements social impact bonds, which is sort of misleading because they’re more like contracts or loans than “bonds” referred to in traditional investment parlance. The multi-month agreement with Abode Services is the county’s first contract of this type.
Venture Capital For Social Service Organizations
Michael Cooney & Navjeet Bal – RBJ
Social impact bonds were the subject in these pages in September 2013, recounting the attention brought to the funding mechanism by the Children’s Agenda the year before. The NY Funders Alliance recently hosted a case study on this technique, while Mayor Lovely Warren also has made numerous public references to it.
Social impact bonds are gaining popularity as an innovative way to bring together private investors, social service organizations, and state and local government to address social problems such as juvenile recidivism and homelessness. Private investors provide funding to social service organizations, which allows them to scale up their services and reach a larger number of clients. If the organization is successful in meeting certain benchmarks, the state or city government will make payments that are used to repay the private investors. The private investors take on the risk that the social service organization will not succeed, and the government makes payments based on measurable, successful outcomes.
So, how can social impact bonds help address the many challenges facing the Rochester area, particularly those described in the Doherty poverty report published by the Community Foundation and ACT Rochester?
Rice University Economists Flávio Cunha & Ken Wolpin Available To Discuss Social Impact Bonds Legislation
Press Release Point
The Committee of Investments and Financial Services of the Texas State Legislature is currently considering a bill to authorize government agencies to issue Social Impact Bonds (SIB) — financial tools that allow private investors to provide the resources to implement new or expand existing social programs that benefit not only individuals that receive the services, but also society in general. Rice economists Flavio Cunha and Ken Wolpin are available to discuss this legislation.
Social Enterprise – A Mouthpiece For Britain’s New Colonialism
Leslie Huckfield Research
How to Deliver Public Services ‘on the cheap’ – Britain’s Export to the World
This piece is mainly intended for readers outside the UK, especially for trade unions, and those now facing outsourcing and external contracting pressures, especially from ‘Social Enterprises’ funded by Social Investment, Social Impact Bonds and private funding.
Britain is now the world leader in exporting mechanisms, techniques and templates to fund and deliver public services ‘on the cheap’ – using private money and external contractors – with a babble of Social Enterprises and other organisations tripping round the world as global ambassadors in poverty and misery, with expenses paid by the UK Coalition Government and British Council.
Beyond Green: Public Sector Pioneers Explore New SRI Ideas
Craig McGlashan – Global Capital
The growth of environmental, social and governance bonds (ESG) is overwhelmingly driven by paper linked to environmental projects. But as ESG becomes more of a main topic of discussion for investors, issuers are finding that they can add a socially responsible flavour to their bond offerings in other ways.
In January, Instituto de Crédito Oficial sold a €1bn December 2017 social bond aimed at generating economic growth in Spain.
“We could have done a green bond, but it makes more sense for an organisation like Ico to do a social bond because it is focused on contribution to growth and employment,” says Rodrigo Robledo, head of capital markets at Ico in Madrid.
The success of the deal — it drew a book of over €2bn that included first time buyers of Ico as well as some investors that had not bought the name in years — did not go unnoticed by Ico’s peers, says Robledo.
“I know some other agencies are working on similar ideas,” he adds.
Almost all of the SSA market participants spoken to welcomed the introduction of social bonds, but many doubt whether they will be able to grow in volume to the same extent as their green counterparts.
“There are investors that want to buy bonds with more of a social theme,” says Greg Arkus, head of SSA DCM at Credit Suisse in London. “There’s a market there, but the challenge is that it crosses over with microfinance initiatives. You’ll continue to have social impact bonds, I’m just not convinced it will become a big market given that projects being funded will remain targeted and small in comparison to general funding needs.”
Issuers that are considering a social impact bond could find a large crossover with the green bond audience.
Segmenting Important For Impact Investors Too
Jordan Gildersleeve (Associate, MaRS Centre for Impact Investing) – Forbes
Does your investor have a vested interest in solutions to social or environmental problems? How concerned is your investor with a strong risk-return profile? These are the types of questions you might ask to understand where your investors sit on that spectrum.
The world of social impact bonds provides some good examples of segmenting impact investors. Social impact bonds (or SIBs) are a pay-for-performance arrangement where private capital is raised to fund a public social program, and if the program is able meet performance targets, an outcomes funder (typically government) will pay a return to the investor.
A good example is an Australian SIB launched in October 2013 that is funding an intensive family support program designed to keep children with their families and avoid out-of-home care.