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Perspectives from the Social Investment Symposium 2012

The Social Investment Market: The Role of Public Policy in Innovation and

Execution " " " " " " " " " """"""""""""""" """"January"2013! !

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This!report!was!prepared!by"Aunnie"Patton,"Dean’s"Fellow,"Saïd"Business"School""with!special!thanks!to"Emma"Tomkinson,"Centre"for"Social"Impact"Bonds,"Cabinet"Office""Additional!thanks!for!the!valuable!contribution!of:!

Alex"Nicholls,"University"Lecturer"in"Social"Entrepreneurship,"Saïd"Business"School"Adrian"Brown,"Principal,"Boston"Consulting"Group"Aisha"Riaz,"Innovation"Fund,"Department"of"Work"and"Pensions"(DWP)"Antony"Ross,"Partner"and"Head"of"Social"Entrepreneurs"Fund,"Bridges"Ventures"Ben"Jupp,"Director,"Social"Finance"UK"Christian"Kroll,"Project"Manager,"Bertelsmann"Stiftung"David"Hutchison,"CEO,"Social"Finance"UK"Gareth"Davies,"Executive"Director,"Office"for"Civil"Society"Jim"Clifford,"Partner,"Baker"Tilly"Jim"Robinson,"Social"Investment"&"Finance"Team,"Cabinet"Office"Jitinder"Kohli,"Senior"Fellow,"Center"for"American"Progress"Jonathan"Greenblatt,"Special"Assistant"to"President"Obama,"Office"of"Social"Innovation"and"Civic"Participation"Kab"Lae"Kim,"Research"Fellow,"Korea"Capital"Market"Institute"Kieron"Boyle,"Deputy"Director,"Social"Investment"&"Finance"Team,"Cabinet"Office"Kristin"Misner,"Chief"of"Staff"to"the"Deputy"Mayor"for"Health"and"Human"Services,"New"York"City"Government"Laura"Callanan,"Senior"Expert,"McKinsey"(US)"Linda"Gibbs,"Deputy"Mayor"for"Health"and"Human"Services,"New"York"City"Government"Louise"Savell,"Director,"Social"Finance"Mark"Campanale,"Executive"Director,"Social"Stock"Exchange"Matt"Robinson,"Director"of"Strategy,"Big"Society"Capital"Matt"Roche,"Head"of"Funding,"England"Directorate,"Big"Lottery"Fund"Neil"Stanworth,"Consultant,"ATQ"Consultants""Nick"Hurd"MP,"Minister"for"Civil"Society,"Cabinet"Office"Paul"O’Sullivan,"Chief"Executive,"Clann"Credo"Dr."Peter"Tufano,"Dean,"SaÏd"Business"School"Rebecca"Endean,"Director,"Analytical"Services,"Ministry"of"Justice"Roger"Bullen,"Head"of"Joint"Arrangements,"Schools,"Children"&"Families"Directorate,"Essex"County"Council"Rosemary"Addis,"Social"Innovation"Strategist,"Australian"Government"Siobhan"Harty,"Director"General,"Human"Resources"and"Skill"Development"Canada"Steve"Goldberg,"Managing"Director"&"General"Counsel,"Social"Finance"US"Ted"Anderson,"Director,"MaRS"Centre"for"Impact"Investing"Theresa"Burton,"CEO"&"Co_Founder,"Buzzbnk"Tim"Gray,"Homelessness"Advisor,"Communities"and"Local"Government"(CLG)"Tim"Jones,"CEO,"Allia"Tom"Hall,"Director"of"Philanthropy"&"Partnerships,"Scope"Yaron"Neudorfer,"Chief"Executive"(Designate),"Social"Finance"Israel" "

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Introduction*

On"30"November"2012,"the"Cabinet"Office"and"the"Saïd"Business"School"co_hosted"a"symposium"on"social"investment.""The"event"featured"over"70"leaders"in"the"social"investment"space"from"more"than"ten"countries,"including"keynote"speakers"from"the"UK"and"US"governments,"Nick"Hurd"MP"(UK"Minister"for"Civil"Society)"and"Jonathan"Greenblatt"(Special"Assistant"to"President"Obama).""The"day"included"forward_looking"discussion"of"emerging"public_private"partnership"structures,"new"social"finance"instruments"and"recently"launched"government"initiatives."Participants"also"reflected"on"the"journey"thus"far,"with"lessons"learned"from"the"implementation"of"UK"Social"Impact"Bonds"(SIBs),"comments"from"international"governments"on"their"SIB"journey"and"reflections"on"the"progress"of"the"social"investment"market"to"date.""Though"by"no"means"exhaustive,"this"paper"seeks"to"share"some"of"the"ideas"and"themes"from"these"discussions.""It"begins"with"a"discussion"of"SIBs"and"then"moves"to"the"broader"social"investment"landscape"and"finally"to"the"role"of"governments"in"the"creation"and"support"of"the"social"investment"market"and"the"issues"that"stakeholders"are"facing"as"they"navigate"this"emerging,"dynamic"relationship.""Keynote*Addresses:*Social*Investment*Innovation*"“In!the!big!picture,![social!innovation]!is!part!of!a!discussion!about!what!type!of!country!we!

want!to!be”"–Nick"Hurd"MP""On*the*importance*of*social*innovation*agenda*to*governments’*efforts*to*promote*

economic*growth*and*job*creation…*

“We!believe!we!can!use!social!innovation!to!

accelerate!economic!recovery!and!job!

creation…!Jobs!in!the!social!sector!plus!

have!grown!faster!than!private!sector!jobs!

and!recovered!quicker!after!the!recession”–"Greenblatt"

“[Social!innovation]!matters!because!it’s!an!

economic!force!(64,000!social!enterprises,!

employing!1!million!people…)!that!is!

capable!of!creating!jobs!where!they!are!

needed!for!people!that!need!them”"–"Nick"Hurd"MP"

"On*London*being*a*Social*Investment*hub…

“We!believe!that!London!is!already!a!

[social!innovation]!hub.!!The!US!stands!on!

your!shoulders!in!social!innovation”"–Greenblatt"

“We!are!not!satisfied!with!our!leadership!

position…!we!are!trying!to!pull!all!levers!

we!can!to!make!it!easier!to!invest!in!the!

space”"–Nick"Hurd"MP""On*the*role*of*the*private*market…*

“We!see!social!innovation!unveiling!in!local!

areas…!we!can’t!create!top!down!

programmes!to!solve!these!problems,!

strengthening!the!social!sector!creates!

bottomRup!solutions.”"–"Greenblatt""

“There!is!a!huge!amount!of!buyRin!from!the!

top!of!government,!but!ultimately!this!will!

be!driven!by!the!market”"–Nick"Hurd"MP""

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Social*Impact*Bonds:*Structure*and*Historical*Context*

Social!Impact!Bonds!are!based!on!a!commitment!from!government!to!use!a!proportion!of!the!

savings!that!result!from!improved!social!outcomes!to!reward!nonRgovernment!investors!that!

fund!the!early!intervention!activities!–"Social"Finance,"2009""The*SIB*model"

" ""*

Benefits*

Increase*private"funding"for"welfare"programs:"scale"effective"innovation"quickly"Reduce*state"spending:*creation"of"government"savings"through"financial"innovation"Transfer*outcomes"risk:"increased"effectiveness"of"state"expenditure"CoHoperate"across"sectors:"align"interests"of"all"stakeholders"Measure*diligently:"evidence_based"methods,"outcomes"vs."outputs"and"improved"accountability"Exploit"net"present"social"value:"move"resources"towards"prevention"and"early"interventions"

Challenges*

Realize"real"savings:"ensure"payment"for"results,"not"process"Distort"market:"increased"power"of"funders"could"lead"to"narrowing"of"focus,"exclusion"of"difficult"or"unattractive"service"areas"Undermine*role"of"the"state:"reduction"of"legitimacy"of"state"through"outsourcing"Measure*effectively:"high"transaction"costs,"baselines,"adjustments"Allocate"risk"and"return:"need"to"price"correctly"to"make"attractive"to"investors,"but"avoid"risk"dumping"Exits"for"service"provides:"post_successful"SIB,"need"to"ensure"continuity"of"funding

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The*Historical*Context*of*Public*Service*Reform:*setting"the"stage"for"the"adoption"of"payment"by"results"(PbR)"in"the"UK*

"""Nicholls,*2012

New"Public"Management"Rolling"back"of"the"state"Dominance"of"neo_liberal"agenda"Free"market"deregulation/privatisation"Enterprise"culture"

1980s* Reinventing"Government""Increasing"efficiency"‘Third"Way’"Quasi_markets""

1990s*

Increasing"effectiveness"Choice"agenda:"decentralization"Co_production:"prevention"not"cure"Payment"by"Results""

2000s*

“One!of!key!attractions!of!SIBs!is!

their!ability!to!facilitate!

collaboration!and!align!

incentives!between!

organisations!that!haven’t!

always!worked!well!together”"–"Dr."Alex"Nicholls,"Saïd"Business"School""

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Social*Impact*Bonds:*UK*Case*Studies*

Consortium*of*Voluntary*Adoption*Agencies*SIB*

Background:"7,000"children"a"year"seek"adoptive"families,"but"less"than"half"find"them"Proposal:"Invert"the"market,"go"out"and"find"parents"for"a"child,"instead"of"parents"coming"to"find"a"child."Funded"through"issuance"of"debt"with"yield"of"at"least"4%.""Local"authorities"pay"return"only"once"they"have"cashed"savings"Innovative*feature:"First"SIB"initiated"by"voluntary"sector"Time*to*market:"9"months"!“We!have!an!18!way!network!of!voluntary!

organisations!and!service!providers….!We’ve!looked!at!

how!the!different!parties!need!to!behave!in!order!to!

deliver!this!and!we’ve!tried!to!achieve!the!structure!

that!has!them!behave!in!their!natural!manner!towards!

the!market!as!they!perceive!it.”!–"Jim"Clifford,"Baker"Tilly!"Essex*County*Council*SIB*

Background:**County"has"high"numbers"of"children"with"behavioural"issues"in"high_cost"residential"placements.""Officials"believe"that"high_level"intensive"interventions"could"break"the"vicious"cycle"exacerbating"care"problems"and"funding"availability"Proposal:"Use"multi"systemic"therapy"(MST)"as"intensive"intervention"for"high_risk"children.*Funded"through"special"purpose"vehicle"with"an"outcomes"contract"with"ECC.""ECC"returns"a"percentage"of"reduced"cost"of"patients"Unique*fit*of*intervention:""MST"is"evidence"based,"targeted"and"outcomes"focused,"so"it"naturally"fits"with"SIB"structure."Innovative*feature:*First"SIB"delivered"by"a"local"authority""Time*to*market:"18"months"!“SIBs!work!where!you!deploy!them!tactically!–!it’s!

about!trying!to!create!some!systemic!change!that!

changes!the!way!things!have!been!done,!but!then!has!

an!impact!on!the!system”!–"Roger"Bullen,"Essex"County"Council!

Greater*London*Authority*/*Communities*and*

Local*Government*Homelessness*SIB!

Background:"London"had"5,678"individuals"sleeping"rough"in"2012,"but"the"large"majority"was"only"seen"sleeping"rough"once."Proposal:"Provide"additional"services"to"cohort"of"831"rough"sleepers"(who"have"bedded"down"at"least"six"times"in"the"past"two"years,"and"account"for"almost"half"of"all"recorded"rough"sleeping)"to"achieve"a"substantial,"sustainable"change""Innovative*features:"Outcomes"are"measured"and"paid"for"every"quarter,"so"investors’"money"isn’t"tied"up"for"the"entire"SIB"timeline.""There"is"a"basket"of"indicators"to"encourage"work"with"the"whole"group"and"avoid"perverse"incentives."!“If!the!expertise!in!delivering!outcomes!lies!with!

voluntary!sector!organisations!outside!government,!

then!commissioners!sometimes!need!to!ask!them!to!

deliver!the!outcomes!and!allow!them!flexibility!to!

figure!out!how!to!do!it,!if!these!organisations!don’t!

have!access!to!finance,!then!social!investment!offers!a!

great!opportunity”!–"Tim"Gray,"DCLG""DWP*Innovation*Fund*SIBs*

Background:""Created"to"stimulate"the"PBR"market,"the"DWP"distributed"a"list"of"outcomes"the"they"were"willing"to"pay"for"and"completed"a"procurement"process"resulting"in"6"SIBs"in"round"1"(April"2012)"and"4"SIBs"in"round"2"(October)"Proposal:"Deliver"support"to"young"people"14"years"and"over"who"are"disadvantaged"and"test"the"welfare"benefits"that"are"generated.*Funded"through"100%"PbR"instruments"with"a"variety"of"returns"ranging"from"commercial"to"social."Innovative*feature:"First"time"any"UK"government"body"has"procured"SIBs"through"a"competitive"process"Time*to*market:"Designed,"commissioned"and"implemented"fund"in"9"months"!“We!had!to!listen!to!the!market!to!determine!whether!

the!outcomes!were!commercially!attractive”!–"Aisha"Riaz,"DWP

*

The*First*SIB:*Peterborough*–*Lessons*Learned***

“In!order!to!implement!these!programmes!you!need!to!think!very!carefully!about!how!every!single!pound!is!

distributed”!–"David"Hutchison,"Social"Finance"UK!“As!we’ve!begun!to!gather!data,!for!example,!we’ve!found!that!if!someone!expresses!a!need!to!be!met!at!the!

gate,!they!are!significantly!less!likely!to!reoffend.!That!is!not!a!statement!of!causality,!it’s!a!correlation,!but!it!

has!affected!the!way!we!use!our!resources!and!spend!our!money.”"–Hutchison!“It’s!only!when!the!money!starts!to!flow,!when!the!investment!is!made,!that!the!change!begins!to!happen.”!R!

Hutchison!!“A!number!of!other!services!R!even!though!they!are!not!funded!by!the!SIB!R!find!that!they!are!able!to!be!more!

effective!working!in!partnership!with!us."–Hutchison!“Look!at!the!commissioning!process!and!make!sure!you!are!having!the!right!conversations…!and!involve!your!

experts!early…Government!wants!the!signoff!of!experts”""–"Rebecca"Endean,"Ministry"of"Justice

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!Social!Impact!Bonds:!Worldwide!Update

United!States!• New"York"SIB"for"delivering"services"to"youth"on"Rikers"Island"was"launched"in"2012"with"Goldman"Sachs"providing"capital,"Bloomberg"Philanthropies"guaranteeing"loan"and"Vera"Institute"of"Justice"measuring"impact"“Hopefully"will"do"2"or"3"more"projects"[in"2013].""We"are"looking"to"institutionalize"SIBs"in"New"York”"–"Linda"Gibbs,"NYC"government"

• Massachusetts"and"Connecticut"in"exploration"stage""

• Fresno"County,"California"in"data"collection"stage"of"making"a"case"for"a"SIB"where"private"insurance"company"would"fund"returns"

Canada!• Government"released"National"Call"for"Concepts"for"social"finance"in"November"2012"

• "The"Government"of"Canada"has"committed"to"exploring"social"finance"instruments"as"a"way"to"further"encourage"the"development"of"governmentYcommunity"partnerships."""Y"Siobhan"Harty,"Human"Resources"and"Skill"Development"Canada"

Korea!• "Currently"Korea"is"considering"how"to"develop"the"Korean"SIB"structure.""Y"Kab"Lae"Kim,"Korea"Capital"Market"Institute"

Ireland!• “With"support"from"Social"Finance"UK…"the"Department"of"Public"Expenditure"&"Reform!established"an"InterYDepartmental"Steering"Group"to"progress"the"[SIB]"concept!across"a"number"of"government"Departments"and"this"group"is"currently!assessing"the"feasibility"of"five"potential"shortYlisted"areas.”"–"Paul!O’Sullivan,"Clann"Credo!

"

Israel!• “Currently"establishing"SIBs"focused"on"employment"for"the"ultraYorthodox"and"Arab"populations”"–"Yaron"Neudorfer,"Social"Finance"Israel"

Germany!• “Focus"for"any"SIBs"issued"will"be"generating"additional"capital"for"programmes,"not"threatening"programmes"from"the"welfare"state”"–"Christian"Kroll,"Bertelsmann"Stiftung"

France!• Currently"examining"international"benchmarks"for"SIBs"

• Have"recently"appointed"a"Minister"of"Social"Sector"

"

Australia!• Social"Benefit"Bonds"(SBB)"pilot"was"launched"in"2012"in"New"South"Wales."The"SBB"pilot"is"partnering"with"three"charities"(Mission"Australia,"UnitingCare"and"the"Benevolent"Society)"to"develop"three"separate"bonds"that"will"reduce"reoffending"and"the"need"for"foster"care."

• Other"states"are"exploring"SBB"option"• “One"charity"was"required"by"its"partners"to"have"financial"stake"in"interventions"to"assure"investors,"another"is"considering"investing"voluntarily”"–"Emma"Tomkinson,"Centre"for"SIBs"

!

Social'Impact'Bonds:'Themes'of'Discussion'Cashable'Savings:'A'Necessary'Ingredient'or'Potential'Barrier?'Cashable!savings!have!been!a!key!justification!of!most!SIBs!to!date,!yet!there!was!evidence!during!the!conference!that!SIBs!may!be!beneficial!in!areas!where!few!savings!exist.!Reiterating!the!prevailing!sentiment!and!Essex’s!experience!launching!their!SIB,!Bullen!remarked,!“SIBs!work!particularly!well!when!you!have!a!particular!cohort!able!to!achieve!a!particular!outcome,!which!is!able!to!produce!a!cashable!savings”.!!Yet!the!GLA/CLG!Homelessness!SIB,!if!successful,!may!cost!commissioners!more!overall,!as!participants!access!more!of!the!public!services!available.!Endean,!in!reflecting!on!the!lessons!from!the!Peterborough!SIB,!said!that!they!had!spent!a!lot!of!time!at!the!beginning!focused!on!cashable!benefits,!and!that!“maybe![cashable!savings]!was!too!much!of!a!focus”.!!She!suggested!that!commissioners!should!instead!weigh!the!full!economical!and!social!costs!and!the!benefits![of!a!programme]!“and!then!see!if!you!have!the!money!to!pay!for!it”.!!Referencing!Canada’s!journey!towards!SIBs,!Harty!reflected!that!simply!pursuing!cashable!savings!would!make!it!very!difficult!for!them!to!proceed.!Thus,!they!“have!to!find!another!launchpad.”!!Neudorfer!agreed,!saying!that![Social!Finance!Israel]!plans!to!focus!Israeli!SIBs!above!and!beyond!cashable!savings.!!!!“I!think!Government!is!moving!away!from!the!‘do!cashable!savings!mean!effective!outcomes’!model!with!the!GLA!paying!for!outcomes!that!are!of!value.”!–Hutchison!!Complex'nature'of'SIBs:'Do'We'Need'More'Simplicity?'There!was!common!agreement!that!more!simplicity!is!needed!in!the!space!to!drive!down!transaction!costs!and!time!to!market.!Endean!noted!that!picking!one!final!outcome!was!important!in!a!path!to!streamlining!measurement,!“if!you!pick!intermediate!outcomes,!you!will!be!at!risk!of!paying!for!processes”.!Bullen!noted!that!Essex!County!Council!set!out!with!the!intent!to!make!the!instrument!“as!simple!as!possible”!but!still!took!18!months!to!develop.!Yet,!as!Nicholls!cautioned,!we!have!to!consider!that!markets!may!be!distorted!by!the!limitations!of!what!we!can!easily!measure!and!exclude!complicated!interventions!or!more!difficult!cost!models.!!!!!Even!discussing!SIBs!can!be!complicated.!!As!Tomkinson!remarked,!“When!we!looked!at!SIBs!in!Australia,!we!wanted!to!talk!about!what!they!would!achieve,!but!it!is!difficult!to!start!conversations!about!impact,!when!the!media!wants!to!talk!about!inputs”.!Nick!Hurd!MP!agreed,!noting!that!it!is!difficult!to!talk!about!outcomes!when!“we!have!to!wait!five!years!to!have!robust!data”.!!Greenblatt!also!commented!on!this!difficulty,!saying,!“Our![US]!media!doesn’t!understand!SIBs…!our!languages!are!all!different.!!We!need!to!drive!towards!harmonisation!of!outputs,!capital!markets!don’t!work!without!a!shared!language”.!!!Standards:'Are'We'Holding'SIBs'to'a'Higher'Standard'than'Similar'Instruments?'“We!are!holding!ourselves!to!standards!that!restrict!our!ability!to!put!forward!capital,!higher!standards!than!other!public!spending,”!commented!Adrian!Brown,!BCG,!“Let's!not!stifle!this!through!overambitious!standards!because!it's!new!and!innovative.”!Neil!Stanworth,!ATQ,!agreed,!“We!are!setting!a!very!high!bar!for!a!very!small!proportion!of!the!market!here!and!that!bar!is!not!set!so!high!for!other!parts!of!the!market.”!!!!

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UK'Social'Investment'Market:'Innovative'Tools"Market'Continues'to'Develop'Tools'Across'the'Return'and'Instrument'landscape'

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SOCIAL VENTURE CAPITAL TRUSTS

Buzzbnk"is"an"online'marketplace"that"brings"together"social"ventures"looking"for"funding"and"people"who"are"keen"to"support"social"good"with"small"amounts"of"money"as"either'a'donation'or'loan'in'return'for'a'range'of'benefits."“At!Buzzbnk,!we!believe!it!is!as!important!to!raise!the!crowd!as!to!raise!the!money!to!create!a!sustainable!and!successful!future.”"–"Theresa"Burton,"CEO"&"Co^founder"

Allia"is"a"non^profit"organisation"with"UK"charitable"status."Its"Charitable'Bond"invests"capital"in"low"risk"social"housing"and"gives"the"discounted"yield"upfront"as"grants.""Capital'Plus'Bonds'similarly"invest"their"present"value"in"low"risk"debt"but"invest"the"discounted"yield"in"higher"risk"impact"investment.""Retail'Charity'Bonds'use"existing"retail"bond"infrastructure"to"raise"debt"finance"for"charities.""Some!people!call!us!an!‘infrastructure!intermediary’.!We!help!social!ventures!raise!the!funding!they!need!to!deliver!their!mission!and,!at!the!same!time,!we!encourage!individual!and!corporate!citizens!to!use!what!they!have!not!just!for!personal!profit!but!for!the!benefit!of!society.!–"Tim"Jones,"CEO"'

The"Social"Venture"Capital"Trust"(SVCT)"is"the"first"listed"product"enabling"retail'investors'to'invest'in'a'portfolio'of'socially'motivated'companies"with"the"benefit"of"tax'relief'on'the'cost'of'their'investment."The"first"offer"opened"in"November"2012"with"plans"to"raise"up"to"£20MM'for'an'eight'year'investment'life.""Projected"returns"are"2%'p.a.'gross'N'or'8%'p.a.'after'taking'account'of'the'tax'benefit.'"

Scope,"a"charity"focused"on"improving"the"lives"of"disabled"people,"issued"the"first'exchange'listed'social'bond'arranged"by"Investing"for"Good."Term"Note:"£20m,"1st'tranche:'£2m,'yield:'2%'fixed'p.a.,'maturity:'3'years."Funded"by"charitable"trusts,"individuals"and"institutional"investors."“We!have!to!help!social!sector!organisations!understand!where!they!can!use!this!type!of!capital!and!get!the!backing!of!their!governance!structures”"–"Tom"Hall,"Director"of"Philanthropy"&"Partnerships"""

SSE"is"partnering"with"an"FSA"authorised"investment"exchange"(RIE)"to"create"a'specialist'segment'for'trading'in'securities.""SSE"is"designed"to"provide"for^profit"social"businesses"with"access'to'equity'through"a"market"that"aligns"ventures"with"mission^focused"investors."Market"mechanism"allows"for"price'discovery,'valuation'and'trading'of'shares,'entry'&'exit'route"and"allows"intermediaries"to"create"bespoke"investment"products."Launch"expected"in"2013."“Current!markets!aren’t!there!to!measure!or!give!value!to!social!outcomes”"–"Mark"Campanale,"co^founder""

Equity"

Debt"

Grants"

(100%)" 0%"Market"Returns"

Expected"Financial"Risk"/"Return"

SOCIAL VENTURE CAPITAL TRUSTS

"

Instruments"

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The'Social'Investment'Market:'UK'Government’s'Role'Nick!Hurd!MP!opened!the!conference!by!noting!the!“high!level!of!priority”!that!the!social!innovation!agenda!holds!for!the!UK!Government.!!!Similarly,!Kieron!Boyle!of!the!Cabinet!Office!closed!the!day!by!saying!that!it!is!the!“UK’s!responsibility!to!continue!to!push!forward!and!lead!international!community”!on!social!investment!innovation!and!in!order!to!do!that,!government!“needs!to!be!told!what!we!need!to!do!and!how!we!can!be!helpful”.!!!In!between!these!statements,!representatives!from!the!UK!government!laid!out!frameworks!and!paths!forward!for!a!variety!of!initiatives.!!Citing!the!goal!of!creating!“an!enabling!environment”!and!stimulating!demand!for!social!investment,!Jim!Robinson!noted!that!the!Cabinet!Office’s!brief!is!to!“create!more!and!better!social!impact!bonds,!and!facilitate!their!creation!across!central!and!local!government”.!!!Two!main!barriers!to!this!deployment!are!“the!lack!of!knowledge!for!what!is!required!to!set]up!SIBs”!and!the!issue!of!“costs!and!benefits!accruing!across!traditionally!multiple!budget!silos”.!!To!address!these!issues,!the!Cabinet!Office!has!announced:!

• A!Social!Outcomes!Fund,!offering!a!minority!top]up!contribution!to!outcomes!payments!for!SIBs!tackling!complex!social!issues,!which!can!show!benefits!across!multiple!spending!silos.!!!

o Two]stage!process!]!expressions!of!interest!(open!now)!then!invite!final!applications.!!Hope!that!over!next!3!years!will!catalyze!10!to!20!SIBs!involving!investment!capital!of!up!to!£60m.!

• A!Centre!for!Social!Impact!Bonds!to!facilitate!the!development!of!SIBs.!The!Centre!for!SIBs!currently!has!four!principal!workstreams:!

o Dissemination!of!information!on!the!fundamentals!of!SIBs!and!how!to!develop!successful!SIBs!

o Creation!of!template!legal!contracts!to!reduce!transaction!costs!o Provision!of!better!data!on!public!service!costs!!o Delivering!light]touch!support!to!individual!SIB!developers!

!!!!

!!!!!'' '

Current'UK'Government'Initiatives''''''''''

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Big!Society!Capital!is!the!world's!first!social!investment!bank.!It!was!established!in!2012!with!a!total!of!£600m!capital!to!invest!in!social!investment!finance!intermediaries,!such!as!SIBs,!including!the!new!Essex!SIB,!social!investment!funds!and!social!banks,!to!help!develop!their!capacity!to!provide!social!sector!organisations!with!access!to!new,!appropriate!and!affordable!sources!of!finance!to!increase!their!social!impact.!It!also!acts!as!a!market!champion!to!increase!the!awareness!and!confidence!in!social!investment,!including!promoting!best!practices!in!evidencing!social!value!and!helping!connect!the!social!investment!and!mainstream!financial!markets.!

Big!Lottery!Fund!distributes!around!£600m!annually.!!It!provided!funding!for!Social!Finance!to!develop!the!Peterborough!SIB!and!future!projects!include!an!investment!readiness!fund!and!top]up!payments!for!outcomes,!which!will!run!alongside!the!Social!Outcomes!Fund,!while!specifically!focusing!on!supporting!the!voluntary!sector.!

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Transferring'of'Risk'and'Privatization'Concerns'Throughout!the!day,!panelists!and!delegates!remarked!on!the!delicate!balancing!act!required!

to!frame!government!involvement!in!social!investment!as!additive!to!public!services,!while!

also!advocating!a!cultural!shift!to!pay!for!performance.!!The!risk!of!public!backlash!towards!

“privatization!of!public!services”!was!heavy!on!the!minds!of!representatives!from!continental!

Europe,!Canada,!the!UK!and!even!the!US.!!

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Koll!commented!that,!in!Germany,!it!is!imperative!to!frame!debate!around!what!additional!

services!SIBs!can!provide!citizens.!!Ted!Anderson,!MaRS!Centre!for!Impact!Investing!in!Canada,!

noted!that!the!November!announcement!from!the!Canadian!government!calling!for!“concepts!

for!social!finance”!unleashed!a!“storm!of!privatization!concerns”!and!fears!of!a!changing!tide!of!

government!intervention,!which!created!another!roadblock!for!government.!Nick!Hurd!MP!

noted!that!the!UK!is!“no!stranger!to!the!conversation!about!privatization,”!but!that!looking!at!

Essex!as!an!example,!no!services!have!been!cut,!the!MST!intervention!that!will!be!offered!is!all!

additional.!!He!highlighted!this!aspect!of!the!SIB!as!a!powerful!marketing!tool!since,!“from!

point!of!view!of!taxpayer,!there!is!nothing!to!be!

concerned!about”.!!!In!the!US,!Goldman!Sachs!played!an!

investor!role!in!the!NYC!SIBs!and!due!to!their!established!

financial!background,!Greenblatt!commented!their!

involvement!was!both!“an!issue!for…!and!validation!of”!

the!SIB!concept.!He!noted!the!US!public!also!has!the!

same!fears!of!privatization,!and!in!order!to!promote!

understanding,!“we!don’t!call!them!SIBs,!instead,!we!

refer!to!them!as!Pay!for!Success!Bonds.!We!also!highlight!

that!Goldman!only!gets!paid!when!recidivism!drops,!in!

the!way!we!frame!this,!we!try!to!avoid!histrionics.!!We!

need!to!get!past!the!hype!to!make!it!easy!to!see!how!

anyone!can!benefit.”!

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Nonetheless,!it’s!not!just!the!framing!of!the!debate!that!matters!in!the!risk!and!return!profile!of!

social!investments.!“We!have!to!make!SIBs!attractive!to!investors!while!avoiding!“risk!

dumping”,!noted!Nicholls,!“we!need!to!look!closely!at!how!risk!and!return!are!calculated.”!!In!

the!Peterborough!bond,!“there!is!a!34!month!lag!between!origination!and!payment,”!

commented!Endean.!While!this!is!advantageous!for!government!because!it!doesn’t!have!to!pay!

out!until!after!the!results!are!achieved,!it!is!also!a!long!time!for!a!social!investor!to!wait!for!

payment.!!Additionally,!“our!investors!are!taking!100%!outcome!risk,”!noted!Hutchison.!!This!

balance!may!be!shifting.!!Louse!Savell,!Social!Finance!UK,!noted!that!social!enterprises!are!

“starting!to!realise!that!there!is!some!value!in!balancing!the!risk!between!early!payments!and!

longer]term!payments,!because!for!government!there!can!be!some!value!in!shorter]term!

payments”.!

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Highlighting!risk!allocation!as!crucial!to!all!social!investment!decisions,!Brown!suggested!

asking!the!questions:!“Who!is!holding!which!type!of!risk?!!Who!do!you!want!to!do!the!

innovating!and!what!sort!of!risk!do!you!want!to!pass!on!to!them?!If!you!want!to!innovate!with!

your!financing!model,!you!might!hold!the!risk!there!and!not!pass!it!on!to!your!delivery!bodies!

who!you!don’t!want!to!innovate!–!if!you!want!your!service!delivery!partners!to!innovate,!you!

might!want!to!pass!more!of!the!risk!to!them.”!!Echoing!this!vein,!Antony!Ross,!Bridges!

Ventures,!asked!!“Are!SIBs!for!innovation!or!execution?”!He!noted!that,!as!an!investor,!the!

easiest!SIBs!to!invest!in!are!ones!that!employ!proven!concepts,!like!MST!and!suggested!that!

since!SIBs!are!not!an!easy!way!to!access!capital,!we!should!use!philanthropy!to!prove!concepts!

“Do!your!homework!on!legal!and!regulatory!barriers!to![governments]!looking!to!move!into!social!finance.!We!worked!with!regulators!and!treasury!to!solve!these!issues!prior!to!moving!forward.!!This!preJwork!put!government!in!position!to!go!out!with!more!clarity!and!genuineness.“!!!]!Harty!

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before!approaching!investors.!!Speaking!of!philanthropists,!Laura!Callanan,!McKinsey,!asked!“Are!NGOs!ready!to!take!on!the!reputational!risk!and!wade!into!this!field![outcome!based!payment]?”!!To!which!Hutchison!responded!“Counterparties!need!to!be!accurately!rewarded!for!taking!risk.!!We!also!need!to!work!with!organizations!to!create!risks!they!are!ready!to!take!on.”!!Surviving'Government'Transition'In!outlining!the!value!of!SIBs,!Nicholls!asked,!“how!do!we!encourage!governments!to!fund!interventions!10!years!out!]!beyond!life!of!government?”!SIBs!have!so!far!appealed!to!both!sides!of!politics.!!Tomkinson!noted!how!in!Australia,!in!2010,!the!New!South!Wales!Government!made!a!public!decision!to!explore!SIBs.!!When!the!party!holding!Government!changed!in!2011,!the!new!Government!renamed!them!Social!Benefit!Bonds!and!made!the!initiative!one!of!the!three!new!funding!announcements!for!their!first!budget.!!In!the!UK,!Endean!noted!that!the!Peterbourgh!SIB!had!to!have!all!of!its!contracts!reapproved!when!the!government!changed,!but!the!programme!stayed!completely!intact.!!In!New!York,!Gibbs!mentioned!that!they!are!aware!that!last!year!of!Bloomberg!administration!allows!them!a!short!time!frame!to!“institutionalize”!pay!for!success!bonds.!!Data:'The'Need'for'an'Evidence'Base'The!need!for!more!and!better!data,!a!common!language!of!references!to!outputs!and!outcomes!and!standardisation!in!reporting!were!discussed!in!most!sessions!on!the!day.!Greenblatt!spoke!of!actions!the!US!government!is!taking!to!increase!accessibility!of!IRS!data!on!non]profits!and!corporations,!saying,!“Increasing!transparency!is!a!key!part!of!government’s!role!in!helping!businesses…![It’s]!all!about!releasing!information!to!allow!entrepreneurs!to!start!businesses!and!create!jobs!in!the!app!economy.”!!Similarly,!when!discussing!the!Centre!for!SIBs,!Jim!Robinson!highlighted!access!to!information,!including!data!on!costs!and!benefits!in!government!and!standard!legal!contracts,!as!public!goods!the!Centre!plans!to!deliver.!!!!This!type!of!benchmarking!data!is!exactly!what!Savell!called!one!of!the!greatest!needs!for!social!finance!practitioners,!saying,!“when!you!go!in!to!talk!the!government!they!don’t!know!what!it!costs!for!an!outcome.!They!tend!to!pull!off!the!shelf!a!programme!that!did!very!well,!while!the!average!is!about!30%!lower!than!that.”!Noting!that!“SIBs!stand!or!fall!on!how!convincing!their!metrics!are”,!Nicholls!also!remarked!that!the!“discipline!of!thinking!through!effective!measurement!has!lots!of!externalities,!other!benefits”.!Speaking!of!her!experience!in!NSW,!Tomkinson!agreed,!“SBB!data!requests!were!very!different!from!other!government!programme!requests.!!Previously,!the!data!requested!were!snapshots!within!silos!of!government.!!As!we!began!to!ask!for!data!that!demonstrated!progression!along!a!risk!continuum,!it!led!to!massive!reforms!around!data!collection!and!changed!the!way!business!was!done!across!departments.”!!From!the!investors’!perspective,!Hutchison!commented!that!evidence!around!the!likelihood!of!certain!outcomes!being!achievable!is!critical!to!investors.!PBR!can!push!a!cultural!change;!the!act!of!collecting!data!and!analysing!it!(even!in!the!early!months),!then!changing!direction!if!need!be.!For!social!enterprises,!Endean!recommended!getting!as!much!data!out!there!as!possible.!!“Supporting!your!plan!of!progress!involves!sorting!out!any!data.”!Nevertheless,!it’s!not!just!about!releasing!new!data,!“We!need!more!access!to!existing!datasets,”!said!Matt!Robinson,!Big!Society!Capital,!“we!need!to!understand!what!we!have!and!what!we!need.”!!!' '

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CrossNSilo'Benefits:'How'to'Capture?'Jim!Robinson!noted!that!measuring!and!capturing!“costs!and!benefits!accruing!across!multiple!parts!of!the!public!sector”!are!one!of!the!biggest!barriers!to!the!roll]out!of!SIBs!across!the!UK.!!Gibbs!agreed!with!this!sentiment,!saying!“One!of!biggest!issues!in!the!US!is!how!we!work!across!silos.!!One!of!the!reasons!we!looked!at!recidivism!because!of!high!degree!of!local!funding.!How!do!we!measure!and!capture!city/state/federal!reinvestment?”!!!In!answer,!Savell!observed,!“what!government!has!to!do!at!some!point!is!to!understand!the!broader!outcomes!context!–!e.g.!what!historically!has!happened!to!rough!sleepers,!what!are!the!total!costs...!Government!has!to!do!this!as!part!of!valuing!the!outcome.“!!In!reflecting!on!how!this!has!played!out!in!the!Peterborough!SIB,!Hutchison!noted!,!“Peterborough!required!cooperation!between!many!delivery!organizations.!!The!needs!of!prisoners!were!so!complex!that!multiple!delivery!organizations!were!required.”!In!order!to!deal!with!this!complexity,!“we’ve!managed!to!match!our!data!in!with!the!DWPs!data!and!that!has!been!a!really!important!part!of!contracting!multiple!outcomes,”!said!Endean!of!the!project.!

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Procurement:'Paying'for'Success'With!the!UK!“on!the!brink!of!a!revolution!of!how!public!services!are!delivered”,!which!presents!

huge!challenges,!but!also!huge!opportunities,!Nick!Hurd!MP!commented!that!“there!has!been!

too!much!payment!for!mediocrity!and!failure!in!the!past.”!!Agreeing!that!change!is!necessary,!

Hutchison!remarked,!“there!is!a!danger!of!a!bias!towards!optimism!in!procurement….!

outcomes!must!excite!social!investors!–!the!procurement!portal!is!not!the!best!way!of!exciting!

them”.!!!!

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Rosemary!Addis,!Australian!Government!Department!of!Education,!Employment!and!

Workplace!Relations,!asked,!“Are!we!starting!from!a!programme!focus!or!a!social!need?!We!

need!to!design!innovative!approaches.”!!In!outlining!one!of!those!innovative!approaches,!the!

DWP!Innovation!Fund,!Riaz!commented,!“during!the!procurement!process!we!set!a!maximum!

amount!we!were!willing!to!pay!for!each!outcome.!Bidders!could!pick!and!mix!the!outcomes!

they!were!working!towards.!!One!of!the!biggest!challenges!was!the!tight!procurement!

timescales,!so!we!ran!procurement!over!two!rounds.”!!In!being!innovative,!there!is!also!the!

danger!of!being!overly!complex.!!“I!think!there!are!relatively!few!organisations!that!are!able!to!

sufficiently!interpret!what!government!is!putting!on!the!table!in!terms!of!contracts.”!said!

Savell.!!In!response!to!a!question!regarding!work!going!on!to!address!the!alignment!of!

investors,!providers,!commissioners!in!procurement,!Ben!Jupp,!Social!Finance!UK,!discussed!an!

event!the!government!held!in!Manchester!before!starting!the!procurement!process.!!The!event!

was!a!large!one!with!providers!and!a!roundtable!of!investors!and!was!designed!to!educate!as!

well!as!brainstorm.!!Bullen!applauded!this!type!of!coordination!saying!that!at!the!local!level!

“dialogue!is!required!to!develop!bespoke!solutions”!in!the!procurement!process.!!!

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Conclusion'“This!conference!was!the!first!meeting!of!its!kind!to!prioritize!the!policy!aspect!of!SIBs!and!

other!innovative!social!investment!tools.!!!We!believe!this!is!just!the!beginning!of!an!important!

collaboration!between!the!Cabinet!Office!and!the!University!of!Oxford!in!examining!the!issues!

that!will!drive!the!social!investment!market!forward.”!]!Nicholls!

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Social'Investment'Symposium'Agenda:'30'November'2012'Theme' Session'Title' Presenters'Strategic)context'

Welcome! Dr.*Peter*Tufano,*Dean,*SaÏd*Business*School!Introduction! Gareth*Davies,*Executive*Director,*Office*for*Civil*Society!Keynote*1:*social*investment*innovation*in*the*UK!

Nick*Hurd*MP,*Minister*for*Civil*Society,*Cabinet*Office!

Keynote*2:*social*investment*innovation*in*the*US!

Jonathan*Greenblatt,*Special*Assistant*to*President*Obama,*Office*of*Social*Innovation*and*Civic*Participation!

Social)impact)bonds)in)action:)the)UK'

SIBs*and*public*service*reform:*an*academic*perspective!

Dr.*Alex*Nicholls,*University*Lecturer*in*Social*Entrepreneurship,*SaÏd*Business*School!

CVAA*adoption*SIB! Jim*Clifford,*Partner,*Baker*Tilly!GLA*/*CLG*homelessness*SIB!

Tim*Gray,*Homelessness*Advisor,*Communities*and*Local*Government!

Essex*County*Council*SIB! Roger*Bullen,*Head*of*Joint*Arrangements,*Schools,*Children*&*Families*Directorate,*Essex*County*Council!

DWP*Innovation*Fund*SIBs! Aisha*Riaz,*Innovation*Fund,*Department*of*Work*and*Pensions!Peterborough*SIB! David*Hutchison,*CEO,*Social*Finance*UK!

Innovation)session'

Buzzbnk! Theresa*Burton,*CEO*&*CoWFounder,*Buzzbnk!

Social)impact)bonds)in)action:)around)the)world'

Introduction*and*overview*of*US*developments!

Jitinder*Kohli,*Senior*Fellow,*Center*for*American*Progress!

Social*investment*and*SIBs*in*Australia!

Rosemary*Addis,*Social*Innovation*Strategist,*Australian*Government*Emma*Tomkinson,*Centre*for*Social*Impact*Bonds,*Cabinet*Office!

New*York*City*SIB! Kristin*Misner,*Chief*of*Staff*to*the*Deputy*Mayer*for*Health*and*Human*Services,*New*York*City*Government*Linda*Gibbs,*Deputy*Mayor*for*Health*and*Human*Services,*New*York*City*Government*

SIBs*in*Canada! Siobhan*Harty,*Director*General,*Human*Resources*and*Skill*Development*Canada!

Innovation)in)social)investment'

Big*Society*Capital! Matt*Robinson,*Director*of*Strategy,*Big*Society*Capital!Allia*bonds! Tim*Jones,*CEO,*Allia!Social*stock*exchange! Mark*Campanale,*Executive*Director,*Social*Stock*Exchange!Social*Impact*Venture*Capital*Trust!

David*Hutchison,*CEO,*Social*Finance*UK!

Innovation)session'

Scope*bonds! Tom*Hall,*Director*of*Philanthropy*&*Partnerships,*Scope!

Strategic)support)for)social)investment'

Practical*challenges*of*implementing*SIBs!

Rebecca*Endean,*Director,*Analytical*Services,*Ministry*of*Justice*

Social*Outcomes*Fund,*Centre*for*SIBs*and*the*Big*Lottery*Fund!

Jim*Robinson,*Social*Investment*&*Finance*Team,*Cabinet*Office!

How*to*build*capacity*inside*and*outside*government!

Ben*Jupp,*Director,*Social*Finance*UK!

How*to*pay*for*complex*outcomes!

Steve*Goldberg,*Managing*Director*&*General*Counsel,*Social*Finance*US!

How*to*cover*the*cost*of*SIB*development!

Matt*Roche,*Head*of*Funding,*England*Directorate,*Big*Lottery*Fund!

Closing)remarks' ! Kieron*Boyle,*Deputy*Director,*Social*Investment*&*Finance*Team,*Cabinet*Office!

!