Social Impact Bond10:00am – 11:15am
Facilitators: Brian Parker, McGuire Woods / Sam Reiman, McCune Foundation
Speakers: Simon Jawitz, Growth Philanthropy Network / Bill Pinakiewicz, Nonprofit Finance Fund
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nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®
Nonprofit Finance Fund®
An Introduction to the Social Impact Bond
Presented by:
Bill PinakiewiczDirector, New England Program
May 12, 2011
4nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®
Social Impact Bond
Structure
The Social Impact Bond - What is it all about?
Voluntary
Government Payer Retains a Portion of
“Cashable” Savings fromSuccessful Investments
Multi-year Capital for
Qualified Service Provider(s) from
Private Investors
Capital is Invested in Prevention or Early Intervention Services Producing “Cashable”
Savings to Government Payer
Government Payer Obligated to Pay
Investors From Portion of “Cashable” SavingsIF Contracted Social
Outcome Target Is Hit
Investment Success =Achieving Contractually Agreed Social Outcome
Targets (Metric and Timing)
Measurement of Outcomes
Against Targets is Performed by anIndependent Expert
100% of Success Risk Shifted From
Government Payer to Private Investors
5nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®
Social Impact Bonds – The Appeal and the Potential
Social Impact Bonds
Innovative structure for new,
supplemental source of multi-year funding
for service providers
2
Monetizes the positive
social impact of prevention
& early intervention
Cost savings to
government payers
compared to current
practices
Aligns interest
of investors, nonprofits & government on positive outcomes
Integrates social &
financial ROI for theimpact
investor pool
More productive reallocation
of risk among
investors, government
& service providers
6nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®
Social Impact Bonds – Underpinnings of Feasibility in the United States
Social Impact Bonds
Pockets of active
support “in concept”
at the federal, state &
local levels
2
Pool of potential investor
demand for structures
that combine social & financialreturns
Growing community of service providers guided by outcome
impact data
Institutions &infrastructure
to support large-scale
private investment
in the social sector
Collaborative network of
US & global stakeholders
sharing informationon “lessons
learned”
Social Impact Bonds
Highlymotivated & capable
intermediary pool actively
vetting SIBopportunities
7nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®
Social Impact Bonds – Barriers to Feasibility in the United States
Social Impact Bonds
2
Highly complex & customized multi-party
transactions - hard to do!
Multi-layer & overlappinggovernment
funding creates
complexity &difficulty
Readiness of service
providers to adapt to SIBexecution
requirements
Uncertainties over
scalability, breadth of
access to SIB capital, cost of metrics,
transparency, etc.
Potential for failed or
substandard “first mover” transactions
to sour the market
Proof of concept not yet achieved
in the original & only
completed transaction
Social Impact Bonds
8nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®
Social Impact Bonds – Readiness and Delivery Issues for Service Providers
Service Provider Readiness
History & culture
of using outcome
metrics to evaluateprogram
performance
2
Business models &executives
withcollaborative
servicedelivery capacity
& experience
Institutional capacity
to support scaling
up & time horizon
requirements of SIBs
Multi-year planning,
budgeting &execution
expertise tomanage
upfront SIB capital
Board support for SIB
business model
capacity demands &
reputational risk
Track record of success in setting & achieving
challenging outcomemetric targets
9
Social Impact Bonds
“The long and winding road”
10
Social Impact Partnership
(LLP)
GeneralPartner
InvestorsLPs
Service Provider
FederalStateLocal
Government
Service Provider
Service Provider
$ SIB
$ $ $Contra
ctContract
Contract
Outcomes Based
Contract
11
Investors
NonprofitOrganization
FederalStateLocal
Government
SIB $
Outcomes Based
Contract
12
Peterborough SIB First SIB transaction completed in the
UK. The Ministry of Justice signed agreement in March 2010. Social Finance Ltd. raised £5 million to fund services to 3,000 male, short-sentenced offenders at Peterborough Prison.
Social sector organizations will provide intensive support to prisoners and their families.
If the re-offending rate is reduced by 7.5% or more, investors will receive cash payments giving them a return of 2.5% - 13.3%
Maximum capped at 13% over eight years.
13
Major Hurdles
1. Program Program must achieve
cost savings that are clear, measurable and consistent What is the Program’s
“outcome” metric? Can the outcome metric
be linked to a government cost savings?
How compelling is the data?
14
2. Does the Program generate cost savings that are greater than the costs of intervention?
Over what period of time?
What is the Program’s return on investment (“ROI”)
15
3. Besides cost savings for the government, what other social benefits does the Program generate?
How large, compelling and quantifiable are the social benefits?
16
4. What governmental entity will achieve cost savings?
Are they currently funding similar interventions? Would they be attracted to pay for outcomes
contract? How does the relevant budgetary process work?
Who pays? Who saves? Will the governmental entity be willing to pay a
“premium” over cost for the services? Should they? What does the government achieve?
What legislative, regulatory and other approvals are required?
What is the credit profile of the government?
17
5. Will investors be willing to take the risk? Financial investors? Social impact investors?
6. What is the appropriate expected rate of return? It depends on the risk of the Program and the return
available on other assets. Treasury Bills Treasury Bonds Corporate Bonds Equities Real Estate Venture Capital Private Equity Commodities Other Social Impact Investments
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Where to Look for More Information on Social Impact Bonds www.socialfinance.org.uk www.socialfinanceus.org www.nonprofitfinance.org www.socialimpactexchange.org www.thirdsectorcap.org www.twincitiesrise.org
…or GOOGLE "Social Impact Bonds" for 634,000 results
Thank you from the Greater Pittsburgh Nonprofit
Partnership!
Workshop Evaluation
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