Pittsburgh Nonprofit Summit - Social Impact Bond

Social Impact Bond
10:00am – 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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Nonprofit Finance Fund®
An Introduction to the Social Impact Bond
Presented by:
Bill Pinakiewicz
Director, New England Program
May 12, 2011

The Social Impact Bond - What is it all about?
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
Retains a Portion of
“Cashable” Savings from
Successful Investments
Voluntary
Government Payer
Obligated to Pay
Investors From Portion
of “Cashable” Savings
IF Contracted Social
Outcome Target Is Hit
Investment Success =
Achieving Contractually
Agreed Social Outcome
Targets
(Metric and Timing)
Social Impact Bond Structure
Measurement
of Outcomes
Against Targets
is Performed by an
Independent Expert
100% of Success Risk
Shifted From
Government Payer to
Private Investors

Social Impact Bonds – The Appeal and the Potential
Social Impact Bonds
2
Innovative
structure
for new,
supplemental
source of
multi-year
funding
for service
providers
Cost savings
to
government
payers
compared to
current
practices
Aligns
interest
of investors,
nonprofits &
government
on positive
outcomes
Integrates
social &
financial ROI
for the
impact
investor pool
More
productive
reallocation
of risk
among
investors,
government
& service
providers
Monetizes
the positive
social impact
of prevention
& early
intervention

Social Impact Bonds – Underpinnings of Feasibility in the United States
Social Impact Bonds
Social Impact Bonds
2
Pockets of
active
support
“in concept”
at the
federal,
state &
local levels
Pool of
potential
investor
demand for
structures
that combine
social &
financial
returns
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
information
on “lessons
learned”
Highly
motivated
& capable
intermediary
pool actively
vetting SIB
opportunities

Social Impact Bonds – Barriers to Feasibility in the United States
Proof of
concept not
yet achieved
in the
original
& only
completed
transaction
Readiness of
service
providers to
adapt to SIB
execution
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
Multi-layer &
overlapping
government
funding
creates
complexity &
difficulty
Highly
complex &
customized
multi-party
transactions
- hard to do!
2
Social Impact Bonds
Social Impact Bonds

Social Impact Bonds – Readiness and Delivery Issues for Service Providers
Service Provider Readiness
2
History &
culture
of using
outcome
metrics to
evaluate
program
performance
Business
models &
executives
with
collaborative
service
delivery
capacity
& experience
Institutional
capacity
to support
scaling
up & time
horizon
requirements
of SIBs
Multi-year
planning,
budgeting &
execution
expertise to
manage
upfront SIB
capital
Board
support
for SIB
business
model
capacity
demands &
reputational
risk
Track record
of success
in setting &
achieving
challenging
outcome
metric
targets

Social Impact Bonds
“The long and winding road”
9

Investors
LPs
General
Partner
$
SIB
Outcomes
Based
Contract
Social Impact
Partnership
(LLP)
Federal
State
Local
Government
Contract
Contract
$
$
$
Contract
Service
Provider
Service
Provider
Service
Provider

Investors
SIB $
Outcomes
Based
Contract
Federal
State
Local
Government
Nonprofit
Organization

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.

Major Hurdles
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?

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”)

Besides cost savings for the government, what other social benefits does the Program generate?
How large, compelling and quantifiable are the social benefits?

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?

Will investors be willing to take the risk?
Financial investors?
Social impact investors?
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

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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Pittsburgh Nonprofit Summit - Social Impact Bond

by GPNP on May 26, 2011

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Pittsburgh Nonprofit Summit - Social Impact Bond — Presentation Transcript