Three strong articles today, the one on British Victorian industrial philanthropy has a splendid, er, flavour but Social Finance US leads the way with another quantum of progress…
Most recently Social Finance also achieved the breakthrough of avoiding direct SEC regulation for the sector.
Omidyar Network & The Pershing Square Foundation Grant Social Finance, Inc. $4.0 Million to Accelerate Growth of Pay-for-Success Financing
Social Finance US
Social Finance announced today, at a White House Pay for Success Summit in Chicago, grant awards totaling $4.0 million from Omidyar Network and The Pershing Square Foundation to support its operations over the next three years. The flexible funds will be used to expand Social Finance’s transaction and advisory teams, as well as accelerate the flow of Pay-for-Success (PFS) financing (or Social Impact Bond) transactions in the United States. The grants represent funding renewals from Omidyar Network and The Pershing Square Foundation, which were founding supporters of Social Finance.
The funding comes as interest in PFS has increased dramatically across the nation. PFS financing is an innovative funding model that drives government resources toward social programs that prove effective at providing results to the people who need them most. The model enables federal and state governments to draw in greater resources to tackle social problems by tapping private investments for the up-front costs of the programs. PFS ensures that taxpayer dollars are being spent only on programs that actually work. As interest in these projects has accelerated, so too has demand for experts that can evaluate PFS feasibility for various interventions, structure transactions, and manage performance.
SIBs Have A Familiar Chocolatey Investment Flavour (subscription)
Matthew Vincent – Financial Times
Wealthy sponsors of the social good in the early 20th century generally needed three things: an architectural vision, a charitable foundation and a state-of-the-art chocolate factory.
In England, George Cadbury used his own money to buy 120 acres of land around his Birmingham plant, on which he built Bournville: a model workers’ village to “alleviate the evils of modern, more cramped living conditions”. His Cadbury Foundation donates to educational and housing causes to this day.
Fellow Quaker Joseph Rowntree established the community of New Earswick, near York, housing workers and managers side by side in houses with private gardens containing at least two fruit trees. His mission to establish “rightly ordered and self-governing communities” continues through the Joseph Rowntree Foundation and Joseph Rowntree Housing Trust.
Similarly, in the US, Milton S Hershey built his eponymous company town in Pennsylvania, combining a factory, amusement park and family homes, as well as a school for orphans, to which he bequeathed almost his entire fortune. His foundation still maintains the gardens, museum and theatre.
But it took a lot of Dairy Milks, KitKats and Hershey’s bars to bankroll these mini utopias – proving what many wealth managers have long advised clients: direct social impact can only be achieved on a small scale with a large personal fortune.
Today however, a new construct is giving even the moderately better-off the means to do good: the social impact bond (SIB). Devised to attract private money to government social projects by sharing the ensuing cost savings with investors, SIBs are a palatable addition to investors’ portfolios. They fund the same social causes as those industrial philanthropists – housing, family welfare and employment – but without spending millions on bricks and mortar.
Are Social Impact Bonds Moving Into The Mainstream?
Nicole Carolin – The Caravel
Social Impact bonds (SIBs) are financing mechanisms in which government agencies pay for concrete results in social programs. Rather than financing preventive social services upfront, the government only pays for results at the end of a contract. Known as Pay for Success, SIBs are public-private partnerships that limit financial risk for the government, also a relatively new innovation that could be the future of funding global social change.
Social impact “bonds” are not bonds in the traditional financial sense of the word. Bonds have a guaranteed rate of return, while an SIB’s rate of return may vary depending on performance. SIBs are therefore higher risk, because investors can lose all of their capital if the SIB fails to perform. In addition, SIBs cannot be bought and sold like bonds. Instead of thinking of SIBs as financial bonds, it is better to think of them as a bond or a relationship between the government and an outside organization. The outside organization is responsible for a social intervention in exchange for payment. However, the organization only receives the payment if it achieves the target outcome.