PowerPoint Presentation

avpn.asia

AVPN Webinar26 March 2014

Social Impact Bonds series #2

Ian LearmonthED, Impact InvestingSocial Ventures Australia

Social Impact BondsIan LearmonthExecutive Director, Impact Investing2SIBs: What you need

Willing GovernmentWilling Service ProviderWilling InvestorsFourth key party is the intermediary facilitator, technical support, etc

Investor perspective largely covered by Christian Super, with a few summary comments later3Measurement high level needs

Long term contracts - robust and flexibleReal moneyUnderpinned by calculated savingsSavings generated by program = The OutcomeGovt - High level needsAn expensive problem >$100m pa expenditureCatch 22 insufficient funds for preventionA motivated ministerAccess to dataFlexibility and pragmatism5Indicative economics high level needsExample:Expected future expenditure attributable to Intervention Group $100mIf reduce by 30%, $30m savingsIf savings split equally:$10m investor returns/bond costs$10m service provider costs$10m net government savingsPaid by investors$20m paymentKey point here:

The group you are targeting needs to cost the government a lot of money$150m might be 1,500 people at $100k each, or 15,000 people costing $10k each.It may take up to 5 annual cohorts to reach this many people. The cost will depend on how far into the future the govt is prepared to look, and how broadly they define the costs. (more on this tomorrow)

And:

Program costs need to be substantially less than savings less than half as a starting point for viability.6Investors: high level needsSizeTermCapital at riskFinancial returnSocial return$5 million +100% protected100% at risk5%10%Target/expected real IRRUpside real IRR10%30%4 10 yearsPerceived needSupplemental comments to Christian Super

Overriding message this is not where the big challenges lie7Text slide may show a series of bulletsSample of 24 pt text bulletSingle spacing with 0 pt before line and 0.3 after lineText box size is 12.4 cm Height and 21.6 cm WidthText box position is 3 cm Horizontal and 3.4 cm Vertical from top left corner

What weve done - Newpin Social Benefit Bond89Newpin SBB - StructureNewpin SBB TrustSVA UnitingCareNSW Govt1. $7m funds raised2. $7m on-lent to UnitingCare$50k p.a.3. ~$50m over 7 years4. P + i5. P + iSBB Investors910Newpin SBB - Investor featuresKey ProtectionsInterest RateMin 5% p.a. during first 3 yearsPrincipal Downside First 4 yearsNo greater than 25% Years 5 maturityNo greater than 50%Early Termination at < 45% Restoration Rate (from Year 3)Investors would receive a performance based payment upon early terminationFull payout upon most Early Termination ScenariosRefer IMTarget IRR~10% p.a.1011Mission SBB Structure SVA CTNSW Govt

Mission Australia1. $7m funds raised2. $8m service contract4. $7m + returnSBB Investors3. $20m Payment by OutcomesStill not cleared with NSW after 18 months!!11Service providers: the three DsDesireDevelopment capabilityDelivery capabilityNeed the fundsWant to expand services Comfortable with accountability Confident that it will be a positive experience

Service providers: the three DsDesireDevelopment capabilityDelivery capabilityHow does it really work?What is involved?Accountable, qualified resourcesTime (and hence $$)DataGoodwill and flexibilityProject managementInputsImplementation: the inputs and outputsDefinitionsMeasuresFinancial modelProcess mapsLegal structure and contractsNegotiated termsOutputsDecision maker

$$ - assume $200k hopefully less, but best to expect itTime kills deals

Data from govt, as well as service provider

Goodwill inc willing to share. Collaboration and partnership.

Outputs what is not here is worth noting:No detailed service contract specifying inputs and methodology14Measuring savings: key elements

Sizing the current costThe counterfactualThe proxy measureRandom or real?Sizing the current cost: the total problemIndividuals lifetimeCumulative cost of social problem

Sizing the current cost: examples

Direct cost of OOHCAverage cost per annum per child of OOHC (~$37,000)Average time spent in OOHC (~9 years)Indirect cost of policing and prosecutionPolice, legal aid, court time, victim support (~$20,000)

Indirect cost of incarcerationDaily cost of imprisonment (~$240 small component is direct cost)Average days incarcerated (2.83 years over 20 years)NewpinMpowerThe Proxy Measure: examplesUC payments: number of Cohort 1 children restored to their family (court determined)

Bond payments: the cumulative proportion of Cohort 1 children attending a Mothers Centre who are restored to their family

Cohort 1 = families with at least 1 child 3 mths The cumulative proportion of the group returned to prison (due to parole breach or proven new offence) during 2 years post release.

Exclusions: death, re-incarceration due to prior offence NewpinMpower

The Counterfactual: range of options

Increasing complexity; increasing accuracyHistoric outcome for like population (static or macro adjustments)Correlated population sub-groupMatched control group (propensity score matching)Randomised control trialCompared to a clearly defined intervention cohort (fixed eligibility criteria)Parallel universe ;)Guess, or noneThe Counterfactual: examples

UC payments: Guess (fixed target for first 3 years), then matched control group (but not using propensity score matching manual construction of agreed shadow referrals)

Bond payments: NoneMatched control group detailed propensity score matching undertaken by BOCSARNewpinMpowerRandom or real: examples7 years; 4 10 centresExpected 500 Cohort 1 children in Mothers Centres4.5% error margin

4 years; 4 prisonsIntake 650 paTotal intervention & control group 2,6002.0% error marginNewpinMpower

And then the work beginsDesireDevelopment capabilityDelivery capabilityMobilisation:StaffPhysical resources CommunicationsReporting (numbers, engagement, preliminary results)- Please type your questions into the box on the control panel

Question & Answer 24Register for next webinars at:http://www.avpn.asia/events

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14 15 May 2014www.avpn2014.com