As a follow up to our 2/26/14 webinar, Social Impact Bonds 101, Robert Esposito and Shawn Pelsinger, two NYU Law and Social Enterprise Fellows, joined us to expand upon our original discussion with a deeper look into the growth of SIB's in the Unites States and the implications for the philanthropic sector. Our two experts took us through a number of recent developments around SIB's in the U.S., including the fate of guarantors, the growth of multiple-funding sources, the expanding position of investment banks for financing and the ultimate role of foundations and philanthropy. This was the second webinar in a four-part series with Public Allies.
2. Overview
! Quick
Review
of
Social
Impact
Bonds
! The
Growing
Number
of
SIB
Investors
! Government
Procurement
! SIBs
Beyond
the
Social
Sector
3. Quick
Review
of
Social
Impact
Bonds
! A
Social
Impact
Bond
is
an
innovaOve
financing
mechanism
for
Pay-‐
For-‐Success
contracts
that
is
designed
to
shiS
risk
away
from
government,
and
towards
private-‐sector
capital
to
fund
effecOve
social
service
programs.
The
government
only
pays
if
these
programs
achieve
predetermined,
measurable
goals.
! A
SIB
is
a
mul,stakeholder
partnership
in
which
philanthropic
funders
and
impact
investors
–
not
governments
–
take
on
the
financial
risk
of
expanding
proven
social
programs.
Nonprofits
deliver
the
social
program
to
more
people
who
need
it;
the
government
pays
only
if
the
program
succeeds.
–
McKinsey,
Financing
Social
Change
4. Quick
Review
of
Social
Impact
Bonds
! Key
Features
! Limited
control
on
how
external
organizaOon
carries
out
task;
! Government
cooperaOon
with
external
organizaOon;
! Agreed
upon
target
populaOon
and
success
metrics;
! Payments
conOngent
upon
hiZng
targets
5. Quick
Review
of
Social
Impact
Bonds
Credit:
Social
Finance,
2014
6. The
Growing
Number
of
SIB
Investors
! Single
Investor
! Private
Investors
! Government
Investor
! Service
Provider
Investors
! Retail
Investors
Overview
7. SIB
Investors:
The
Single
Investor
+
Guarantee
! The
Rikers
Island
SIB,
funded
enOrely
by
Goldman
Sachs
Urban
Investment
Group
($9.3M)
! Bloomberg
Philanthropies
guaranteed
75%
of
Goldman
Sachs’
investment
8. SIB
Investors:
The
Single
Investor
+
Subordinated
Debt
! Goldman
Sachs
provided
an
iniOal
investment
of
$4.6
million.
! Philanthropist
J.B.
Pritzker
has
contributed
an
addiOonal
$2.4
million
investment
in
the
form
of
a
subordinated
loan
to
reduce
risk
to
Goldman
Sachs.
9. SIB
Investors:
Government
Investor
! The
Massachusejs
SIB
! Juvenile
JusOce
Pay
for
Success
IniOaOve
will
target
at-‐
risk
young
men
in
the
probaOon
system
! $11.7
million
grant
awarded
by
the
U.S.
Department
of
Labor
! The
London
SIB
! Department
for
CommuniOes
and
Local
Government
(DCLG)
provided
£5M
in
funding
to
improve
outcomes
for
a
group
of
831
persistent
homeless
residents
in
London
10. SIB
Investors:
MulOple
Investors
Closed/Private
Investment
! The
Peterborough
SIB:
17
investors,
sourced
through
private
relaOonships,
consisOng
mostly
of
private
foundaOons
and
individuals.
! The
New
York
State
SIB:
First-‐ever
SIB
offering
distributed
via
a
leading
wealth
management
pla4orm
–
Bank
of
America
Merrill
Lynch
–
to
qualified
private
and
insOtuOonal
investors.
More
than
40
investors
have
parOcipated
in
this
transacOon.
11. SIB
Investors:
Private
Investors
Open
Market
Investments
! In
Australia:
! Restricted
to
wholesale
investors
with
income
>
AU
$250,000
or
AU$2.5m
net
worth
! The
Newpin
SBB
raised
AU$7M
from
59
investors.
! The
Benevolent
Society
SBB
raised
AU$10M
in
two
tranches:
" The
$2.5M
tranche
involves
17
investors
(no
guarantee,
returns
capped
at
30%)
" The
$7.5M
tranche
involves
40
investors
including
NRMA
Motoring
&
Services,
Australian
Ethical
Investments
and
Commonwealth
Bank
of
Australia
(investment
capital
guaranteed,
returns
capped
at
10%)
12. SIB
Investors:
Retail
Investors
The
Essex
SIB
! The
Allia
‘Future
for
Children
Bond’
aimed
at
providing
foster
care
was
the
first
opportunity
for
retail
investors
to
become
involved
in
a
SIB
! The
Future
for
Children
Bond
was
constructed
of
78%
loan
to
a
social
housing
provider,
20%
investment
in
the
Essex
SIB
and
2%
management
fees.
! In
order
to
safeguard
against
ill-‐informed
investor
mistakes,
the
Bond
was
an
‘advised’
product,
which
meant
that
financial
advisors
had
to
apply
on
behalf
of
investors.
! PotenOal
for
crowdfunded
SIBs;
but
concerns
about
scalability
and
which
governmental
enOty
enjoys
savings
benefits
13. SIB
Investors:
Private
Investors
AcOvely
Involved
Investor
! Perth,
Scotland
SIB:
Local
investors
have
contributed
between
£5000
and
£50,000
and
are
involved
in
the
intervenOon.
! Perth
YMCA
recruited
12
investors
–
all
local
businesses
or
individuals
–
who
were
interesOng
engaging
directly
in
the
project,
providing
both
investment
and
skill
resources.
14. SIB
Investors:
Service
Providers
as
Investors
! The
Benevolent
Society
SBB
is
an
example
of
a
service
provider
investor
! In
the
Massachusejs
SIB,
Roca
has
suggested
it
invest
in
addiOon
to
being
a
service
provider
15. Government
Procurement
! Three
Processes
for
Government
Procurement
! Request
for
Qualified
Intermediary
! Whole
Package
! Arranged
Marriage
16. Government
Procurement:
Request
for
Qualified
Intermediary
# Examples:
New
York
SIB,
ConnecOcut
SIB
# How
it
works:
# The
Government
(e.g.,
Department
for
Children
and
Families)
issues
only
one
Request
for
Proposal
(RFP)
seeking
interested
intermediaries
# The
selected
intermediary
is
then
responsible
for
idenOfying
appropriate
intervenOon(s)
and
service
provider(s)
in
conjuncOon
with
the
Government
17. Government
Procurement:
The
Whole
Package
! Examples:
Illinois
SIB,
Department
of
Labor
SIB
! How
it
Works:
! Government
awards
grants
to
applicant
groups
with
fully-‐formed
partnerships
in
place.
This
partnership
must
include
the
roles
played
by
these
four
enOOes:
" state/local/tribal
government
agency;
" Intermediary;
" investor(s);
" and
independent
outcome
validator
18. Government
Procurement:
The
Arranged
Marriage
! Example:
Massachusejs
SIB
! How
it
Works:
! Government
issues
a
Request
for
Response
(RFR)
seeking
intermediaries
! Government
simultaneously
issues
a
second
RFR
seeking
service
providers
! Responders
may
note
pre-‐exisOng
partnership
with
other
organizaOons
or
service
providers
! The
Government
will
not
accept
joint
applicaOons
! Government
then
arranges
a
partnership
between
selected
Intermediary
and
Service
Provider
19. SIBs
Beyond
the
Social
Sector
! Environmental
Impact
Bonds
! Health
Impact
Bonds
! Development
Impact
Bonds
20. SIBs
Beyond
the
Social
Sector:
EIBs
! Environmental
Impact
Bonds
(EIBs)
! MoneOzaOon
of
future
cost
savings
–
the
bedrock
of
SIBs
–
is
already
prevalent
in
environmental
finance
! PotenOal
applicaOons
to:
! Reduced
CO2/GHG
emissions
! Improved
Water
quality
! Increased
use
of
renewable
energy
21. SIBs
Beyond
the
Social
Sector:
HIBs
! Health
Impact
Bonds
(HIBs)
! May
2013
–
The
first
health-‐focused
SIB
in
the
US
is
announced
in
Fresno,
California,
which
has
one
of
the
naOon’s
highest
asthma
rates
(20%
of
children)
! The
California
Endowment
awarded
Social
Finance
and
CollecOve
Health
$660,00
in
grant
funding
to
launch
an
HIB
aimed
at
improving
the
health
of
low-‐income
children
with
asthma
! Partners
engage
families
of
200
low-‐income
children
with
asthma
to
provide
home
care,
educaOon,
and
support
in
reducing
environmental
triggers
of
asthma
! Savings
accrue
to
the
State,
which
benefits
from
reduced
emergency
treatment
costs
associated
with
childhood
asthma
22. SIBs
Beyond
the
Social
Sector:
Development
Impact
Bonds
! Similarities to SIBs
! Investors provide funds to implement social
interventions
! Service Providers work to deliver outcomes
! Outcomes Funders, primarily public sector agencies,
repay investors their principal plus a financial return if
– and only if – independently verified evidence shows
that outcomes have been achieved.
! DisOnguishing
Features
of
DIBs:
! External development agencies are needed to provide
the outcome payment, or some portion of it, in
partnership with a developing country government
23. SIBs
Beyond
the
Social
Sector:
DIBs
! “The
Development
Impact
Bond
is
almost
exactly
the
same
as
the
Social
Impact
Bond,
the
hojest
idea
in
social-‐service
provision
(an
oxymoron
if
ever
there
was
one)
of
the
last
few
years.
One
difference
is
who
repays
investors
if
the
program
succeeds.
With
a
social
impact
bond,
the
government
does.
With
a
development
bond,
payment
would
fall
to
internaOonal
donors
such
as
foundaOons
or
government
agencies
such
as
Britain’s
Department
for
InternaOonal
Development
or
the
U.S.
Agency
for
InternaOonal
Development.”
! -‐The
New
York
Times,
June
19,
2013
24. SIBs
Beyond
the
Social
Sector:
DIB
Case
Studies
! Case
Study
1:
ReducOon
of
Rhodesian
Sleeping
Sickness
in
Uganda
! Case
Study
2:
AnOretroviral
Treatment
as
PrevenOon
of
HIV
and
TB
in
Swaziland
! Case
Study
3:
Low
Cost
Private
Schools
in
Pakistan
! Case
Study
4:
Access
to
Quality
Secondary
EducaOon
in
Uganda
! Case
Study
5:
SME
Pipeline
GeneraOon
and
Value
CreaOon
! See,
Center
for
Global
Development
&
Social
Finance,
Inves,ng
in
Social
Outcomes:
Development
Impact
Bonds
25. Conclusion
&
Review
! The
Growing
Number
of
SIB
Investors
! Government
Procurement
! SIBs
Beyond
the
Social
Sector
! The
CriOcal
&
Evolving
Role
of
FoundaOons
! Playing
the
part
of
guarantor,
investor,
intermediary,
and
evaluator