Social Impact Bonds by CASEi3


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This presentation looks at how Social Impact Bonds can be used to raise funds for projects for public benefit.

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  • Intermediary
  • Social Impact Bonds by CASEi3

    1. 1. + CASEi3 Social Impact Bond Research Prepared for: The Safety Lab & Dalberg Global Development Advisors Prepared by: The Center for the Advancement of Social Entrepreneurship’s Impact Investing Initiative at Duke University’s Fuqua School of Business May 2014
    2. 2. + Agenda  Problem  Approach  5 Goals of SIBs  Stakeholder Overview/Motivation  Future of SIBs  Implications for The Safety Lab
    3. 3. + Problem
    4. 4. + Problem  Determine what is “real” in the Social Impact Bond (SIB) instrument and its impact  For SIBs that are real, identify how they are structured
    5. 5. + Approach
    6. 6. + Approach Research  Performed in-depth research on six active SIBs  Conducted general landscape research Interviews  Conducted interviews with 24 stakeholders (see Appendix for detailed listing)
    7. 7. + 5 Goals of SIBs
    8. 8. + “Real” SIBs intend to meet 5 main goals 1. The SIB will have a positive impact on the beneficiaries and effective metrics for measuring outcomes 2. Decisions to invest in social impact bonds are motivated by interest in return on investment (ROI) 3. The SIB will provide future cost savings to the payer who is typically the government 4. SIBs will allow governments to outsource the financial risk of funding social interventions 5. The SIB will allow different proven programs to scale up
    9. 9. + Goal 1: The SIB will have a positive impact on the beneficiaries and effective metrics for measuring outcomes Positive impact Funding from the SIB will ultimately leave a positive impact on the beneficiaries by mitigating or eliminating the social problem. With measurable outcomes The effect on the beneficiaries can be monitored and evaluated on a quantifiable basis, with logical interim evaluations. That pay for success Repayment will only occur if and when the positive impact reaches the determined threshold, indicating the program’s success.
    10. 10. + SIBs are increasingly concentrating on outcomes rather than outputs, but experts are still trying to determine which topics are appropriate Pilot Programs Although it is generally suggested that these criteria be avoided, some SIBs involve implementers of remediation services.  SIBs typically will focus on a service that aids in the prevention of a social ill  SIBs that have launched thus far have avoided the following criteria: Remedial Programs Exploration & Research
    11. 11. + Social impact bonds focused on the effective measurement of outcomes have faced challenges in measuring indirect impact Social Problem Easy to Measure Direct Impact Difficult to Measure Indirect Impact Recidivism Recidivism bed days Impact on beneficiary families Homelessness Count of rough sleepers Impact on lower crime rate Early childhood remediation Predictive evaluation tests Impact on future employment rate Regardless of the outcomes being measured, it is important that the pay- for-success metrics reward small achievements with small payments, rather than just large successes.
    12. 12. + Goal 2: Decisions to invest in social impact bonds are motivated by interest in ROI Capital Protection In the SIB model, investors shoulder the financial risk of the SIB and lose their principal if the outcome is not achieved. In practice, many SIBs include a guarantor (e.g., grant or VC firm) which results in the investor not losing their entire principal if the outcome is not achieved. Limited Returns Most SIBs place a ceiling on the level of return an investor can earn. Risk Assessment The risk of a SIB for an investor is difficult to quantify. Without a guarantor, the pool of investors willing to take on the risk is limited. Rather than simply financial return, SIB investors are motivated by: • Being part of an innovative solution • Having a social impact • Gaining positive publicity
    13. 13. + Social impact bonds may represent a shift in the form of investments, rather than new investments in the sector Charities Grants Social Impact Bonds Impact Investors Social Entrepreneurs Social Investors: Investment Form: Funding for SIBs may be reallocations from other social sector investments rather than new investments from traditional investors. Potential obstacles to attracting traditional investors: • Rate of return • Cap on return
    14. 14. + Goal 3: The SIB will provide cost savings to the payer who is typically the government Monetizable issue The issue focus of the SIB will be one for which the payer already incurs a cost, either through running a similar program or through absorbing the cost of negative impact. Outsourcing efficiency If the payer already runs a program similar to the implementer’s, the SIB is meant to pay for a more efficient outcome. Avoiding costs from negative impact Cost savings to the payer may come from preventing negative impact and thus avoiding future costs born by the government.
    15. 15. + Payer’s incentive for the SIB may lie more in transfer of risk, and the ability to stretch the social budget, than in cost savings  The implementer may not achieve economic efficiencies, in most cases this is not the main motivation  Payers use this new tool to stretch their budget using the private sector to fund preventative programs  Payer’s motivation derived from transferring the risk of running its own program to the implementer by only paying for successful outcomes Multiple motivations for payer exist beyond cost savings, especially transference of risk and accountability.
    16. 16. + The payer’s motivation to participate depends heavily on how the monetization is framed  Cost savings are often reported as the fully absorbed cost for each beneficiary served (variable + fixed cost allocation) which does not appropriately report the economic realities of the program  Immediate short term savings may include economic efficiencies in how the program is run  Long term savings will often encompass avoided costs that the payer would have absorbed had a negative impact occurred Fixed Costs vs. Variable Costs Short Term vs. Long Term SIBs are often framed such that they are easily understood by government constituents, and promise significant savings, however this framing may not capture the real monetizable impact.
    17. 17. + Goal 4: SIBs will allow governments to outsource the financial risk of funding social interventions  SIBs typically fund “innovative, proven interventions”  Innovative: Implementers are conducting a program using a model that the government does not already follow which has been implemented at a small scale  Proven: Implementers have a proven history of success  Implementers may not have access to public funds without SIBs transferring risk to private investors  Great fundraising opportunity once the model has been proven at a higher scale with public funds  Risk transference is real, governments won’t cover investors’ losses in the long term  Private investors are the true bearer of risk in the SIB market
    18. 18. + A bigger and more mature market is needed to take full advantage of the risk transfer benefits SIBs have been investing in “innovative proven interventions” Implementers wouldn’t have had access to public funds without SIBs transferring the risk to private investors There has been considerable philanthropic/government guarantees to create the SIB market No evidence yet that governments won’t cover investors’ losses in the long term Preliminary Insights Trends  Latest SIBs in UK have no government guarantee  Small scale interventions might be used to test effectiveness of complex social problems  A diversified portfolio of SIBs might create room for riskier social interventions  Proven interventions might sell new SIBs
    19. 19. + Goal 5: The SIB will allow different proven programs to scale up Proven Model The organization’s model for a specific intervention is already working and the outcomes can be measured Scalable The size of the intervention will increase with the SIB, and has the potential for an even larger increase after successful completion of the SIB Continuous After the SIB is completed, the program operations should continue with other sources of funding or as a part of a government program In order to receive SIB funding, intervention programs need to be:
    20. 20. + SIB ? Interventions need to scale by themselves before being eligible for a SIB Seed grants Institutional grants Impact Investors Governments • SIBs allow access to capital to proven organizations • SIBs speed up the scaling process of a program • SIBs facilitate continuity of a specific program The SIB allows the NGO to scale rapidly and, if the SIB is successful, the NGO’s opportunities to continue scaling are promising
    21. 21. + Stakeholder Overview/Motivation
    22. 22. + SIB Stakeholder Overview Other Stakeholders Investor Implementer Intermediary Payer Evaluator
    23. 23. + SIB Stakeholders: Payer Definition Usually a government or governmental agency that repays investors once results have been achieved. Has a vested interest in solving the social problem Payer Role  Efficiently allocate resources to solve social problems  Evaluate different programs and scale the successful ones  Repay principal and return to investors if successful  Could partner with a guarantor in order to cover the bond’s principal Other Stakeholders Investor Implementers Intermediary Payer Evaluator SIB Payer Newpin SBB Treasury Department and FACS, New South Wales Government Peterborough SIB Minister of Justice and The Big Lottery Fund Riker’s Island SIB New York City Government Rough Sleeper SIB Department of Communities and Local Government Teens & Toddlers SIB Department of Work and Pension Utah High Quality Preschool SIB Salt Lake County Council
    24. 24. + Payer Motivation  Insight #1: SIBs are used as a tool to stretch the social program budgets  SIBs are bringing more money into the sector during a time of deep budget cuts  Allows government to set aside funds for prevention services  Insight #2: Interested in transferring the risk to the private sector  Test different models and select the ones with results while incurring less risk  Insight #3: Focused on outcomes, metrics and accountability  Future social savings are anticipated to cover the bond costs  Intention is to scale SIBs if savings are achieved Other Considerations  Governments want proven interventions as opposed to innovative interventions  Metrics are often vaguely defined to get approval from different government stakeholders
    25. 25. + SIB Stakeholders: Implementer Definition An organization that executes the agreed upon intervention and delivers services to constituents in order to realize target results Implementer Role  Identify and recruit participants  Launch the intervention  Execute ongoing program operations  May collect data on participants throughout the program Other Stakeholders Investor Implementers Intermediary Payer Evaluator SIB Implementer Newpin SBB UnitingCare Burnside Peterborough SIB One Service (St. Giles, YMCA, Ormiston, others) Riker’s Island SIB Osborne Association, Friends of Island Academy Rough Sleeper SIB St. Mungos, Thames Reach Teens & Toddlers SIB Teens & Toddlers Utah High Quality Preschool SIB Utah High Quality Preschool Program
    26. 26. + Implementer Motivation  Insight #1: Increased access to funding to expand scope of operations  Grow operations to provide cost savings through economies of scale  Diversify funding to shield the organization from risk  Insight #2: Improve well-being of target population  Provide services and benefits for a larger target population  Focus on program outcomes with room for innovation in delivery  Insight #3: Deliver proven model of success as opposed to innovative model  Access to historic data or control group data to illustrate past success to gain credibility  Data measurement encourages a structure that focuses on impact Other Considerations  SIB contracts may limit flexibility in program execution  Implementer should have sole ownership of, and flexibility within, the funding budget once agreed upon  Contract contingency clauses should be included
    27. 27. + SIB Stakeholders: Investor Definition An individual or organization that provides capital with the expectation of future financial returns due to successful outcomes Investor Role  Provide upfront capital to intermediary to pay for programs  Receives capital plus a return only if program meets predetermined performance targets Other Stakeholders Investor Implementers Intermediary Payer Evaluator SIB Primary Investor Newpin SBB SVA Trust Peterborough SIB Various charities Riker’s Island SIB Goldman Sachs Rough Sleeper SIB Big Issue Invest Teens & Toddlers SIB Bridges Ventures Utah High Quality Preschool SIB Goldman Sachs
    28. 28. + Investor Motivation  Insight #1: Social motivation  Interest in innovative social financing instrument  Principle and return can be used to invest in future SIBs if outcomes are achieved  Insight #2: Financial motivation  Many SIBs include a guarantor, which limits the risk for the investor  SIB investments have little correlation with the market and therefore can diversify investor portfolios  Insight #3: Regulatory incentives can motivate investors  Community Reinvestment Act (CRA) in the USA  Social Investment Tax Relief in the UK Other Considerations  Investors gain positive publicity for investment in social cause  Smaller thresholds for outcome payments instills confidence in investor  Potential for creation of secondary market for SIBs in the future
    29. 29. + SIB Stakeholders: Intermediary Definition An organization that acts as a link between stakeholders in order to bring about the arrangement and execution of the SIB Intermediary Role  Structure financial & legal terms  Select other stakeholders  Serve as primary liaison among all partners  Monitor SIB’s progress Other Stakeholders Investor Implementers Intermediary Payer Evaluator SIB Intermediary Newpin SBB Social Ventures Australia Peterborough SIB Social Finance UK Riker’s Island SIB MDRC Rough Sleeper SIB Social Finance UK Teens & Toddlers SIB Social Finance UK Utah High Quality Preschool SIB United Way of Salt Lake City
    30. 30. + Intermediary Motivation  Insight #1: Make deals happen  Test market appetite for the SIB needed to gather investors  Organize multiple stakeholders  Contracts are complex, plenty of legal issues  Other stakeholders see intermediary’s role as absolutely necessary  Insight #2: Shape the political environment  Rolling out legislation in State of Utah  Qualifying for CRA in USA  Social Investment Tax Relief in UK Other Considerations • There may be need for philanthropic investment to fund intermediaries • Government organizations often contribute to the role – Could do multiple deals around the same team – Can standardize SIB’s terms
    31. 31. + Future of SIBs
    32. 32. + Future of Social Impact Bonds (1/2)  Stakeholders are ultimately uncertain as to the future of SIBs; even in case of success, the political landscape may change.  Many stakeholders believe that either:  The SIB will be repeated, or  The government will directly fund the implementer without a SIB so as to avoid paying a premium to investors,  But, in this case there is concern that even in a successful SIB, the government may cut funding, thus the first option (repeat SIB) seems more likely,  Also, tension between the government and implementer is anticipated in trimming government spending vs. staying mission-focused  In case of SIB failure: some SIBs are project-based and simply end; others will return to normal funding sources at smaller scale but may suffer reputational risks
    33. 33. + Future of Social Impact Bonds (2/2)  Possibility that once SIB instrument is better established (and thus less risky), it may be used to fund more innovative (unproven) solutions  Possibility of establishing a secondary market for SIBs in the long term (+5-10 years)  Possibility of a shift in the intermediary role, may be played by the government / payer, or implementer  Possibility of a shift in investor type towards more a traditionally motivated financial investor, for example pension funds While the future of SIBs is largely unknown, many interviewees agree that SIBs will likely be repeated or funded directly by the government.
    34. 34. + Implications for The Safety Lab
    35. 35. + Implications for The Safety Lab (1/2)  Most logical stakeholder role: Intermediary  Consider costs associated with serving as an intermediary, necessity of philanthropic funding (e.g. Non-profit Finance Fund) or sharing in financial upside of SIB (e.g. Social Finance) – in latter case still need upfront capital since payout is delayed.  Concern over government reliability to pay, especially in developing countries – appropriation risk  Greater media coverage and investor presence can help pressure government contract fulfillment  Possibility to have non-government payer  Few examples of this so far; DFID is exploring commitment; future payers may include employers, business associations, community associations
    36. 36. + Implications for The Safety Lab (2/2)  Implementer needs to have proven model with evidence base and clear metrics for outcomes  Binary metrics help avoid government shirking and eases investor understanding  Prevention and early intervention focus is not mandatory, but is popular for government participation  SIB is essentially a contract between partners,  Understand and balance each stakeholders’ motivations  Also best practice to directly address and plan for contingencies in contract
    37. 37. + Appendix
    38. 38. + Appendix A: Interview Quotes
    39. 39. + I don’t think of SIBs as a tool to innovate social interventions. They are too costly, complicated and risky. I think a deep enough market with riskier SIBs being part of a portfolio strategy is way down the road. -- Steve Goldberg, Independent Social Investment Advisor & Founder of Caffeinated Capital
    40. 40. + [Social Benefit Bonds will] tend to be providers of finance to established operators. it would be hard, but not impossible, for instance, for impact investors to get comfortable with the ability of a service provider party to [an SBB] if it did not have an operating history in the field or, at a minimum, a strong brand that was, in effect, a proxy for that operating history. As a result, [SBBs] will normally be associated with established operators that have established, observable ways of operating and a measurable track record, or with entities that can otherwise assure investors of their competence. -- Paul Bide, Independent Investor, Newpin SBB, Australia
    41. 41. + We are a small organization, and we were looking for money. After several government cuts, this seemed an attractive way to get that money. We do not have any special preference for this financial instrument. If there is money, we are happy to take it and use it to further our charitable aims. Prior to this SIB, we were funded solely by local and central governments and by some charitable funds. The financial impact of this bond was massive for our organization, we certainly could not have done the project without these funds. -- Paul Hopkins, Director of Operations and Finance, Teens & Toddlers, UK
    42. 42. + We are constantly asked to show models that are innovative and have proven their efficacy – which can seem quite contradictory! Our model was already proven and no one else does something like this, so we are innovative in that sense. -- Paul Hopkins, Director of Operations and Finance, Teens & Toddlers, UK
    43. 43. + The big thing we’re seeing right now with foundations is trying to get nonprofits to a place where they can engage in these. We have spent the past seven to eight years building a performance based management system, tracking data, running the model, and running three theory of change processes. If an organization hasn’t done at least some of that work, this is a tough place to walk into. You need to be a reasonably high-functioning nonprofit to engage in these contracts successfully with real attention to outcomes and performance management. I think this is where a lot of nonprofits will run into trouble. -- Lili Elkins, Chief Strategy and Development Officer, Roca
    44. 44. + Someone was telling me that they saw the budget for Peterborough a long time ago and there was a part of the budget they didn't understand. And they asked 'what's that?' and one of the directors said they had deliberately allocated funds for innovation so that they could respond directly to unmet need. That's something they call the "innovation fund" in Peterborough... They're these funds that pay for the extra stuff...It's a budget line that is ring-fenced for innovation and previously unidentified need - it's a contingency. So they budgeted a packet of extra spending before they knew exactly what they'd spend it on… Government shouldn't set the budget for services...[they] should just pay for the outcome. Any more involvement and you're reducing the benefit of what it's all about. -- Emma Tomkinson, Social Impact Analyst, Australia
    45. 45. + Some say that it is inappropriate that impact investors can earn a commercial return from their investments in social programs. I think this way of thinking is unfortunate as any asset class needs to show returns to its investors to survive. If impact investors did not need a commercial return to invest they would be called philanthropic investments. The benefit of this new asset class [of SBBs] is that it is mobilising a new pool of social capital whose return to those providing it is a blended social and commercial return. If the first wave [of SBBs] fail and investors do not make a return, or lose some or all of their principal, that's not a good thing as there’ll be fewer of them around next time, which means less chance that a social program will receive the necessary funds to provide its service. Over time, as in any market, I think the returns to investors will reflect the risks and rewards experience. The market should direct funds to efficient and successful operators at the lowest possible cost. In the early stages of a new asset class, perceived risks of failure are higher and expected returns will reflect that, all other things equal, to encourage investment. It is also worth noting that a government will not agree to the terms of [an SBB] unless it is anticipating that there’ll be a cost saving to the public sector. The SBB model shares cost savings of the successful delivery of social programs between impact investors and the public sector. Investors receiving a return means good things have happened. -- Paul Bide, Independent Investor, Newpin SBB, Australia
    46. 46. + Until investors can price the risk of social impact bonds, there will be a limited appetite for the instrument [from traditional investors]. -- Center for American Progress
    47. 47. + [A guarantor] mitigates the risk, but nobody makes a deal because there’s a guarantee. -- Andrea Phillips, VP Urban Investment Group, Goldman Sachs
    48. 48. + Generally, intermediaries will be needed for investor reach and they are also cheerleaders for the whole sector. There’s also a need for a deal negotiator with the ability to work on structured deals of this nature. Typically, those skills don’t exist in the traditional for purpose or government sectors. Also, the devil is in the details in these types of arrangements and a proper balance of the interests of investors, operators and government will be required. Generally, that balance is provided by an intermediary and not the principals in the transaction. -- Specialist familiar with intermediary organizations
    49. 49. + Conceptually, the intention is that you have investors involved upfront who, in a “traditional” social impact bond, bear the risk of demonstrating the efficacy of preventative interventions. If the program’s contractually agreed upon outcomes are achieved, the government serving as a contingent back-end payor repays the investor and, again conceptually, seeing the intervention as a societally and financially desirable activity, continues to fund the project directly because if they know the program is effective, why .. would continue to pay investors interest on financing that program upfront… The reality is there are a lot of programs that have demonstrated effectiveness in some way, shape, or form that don’t continue to receive government funding. Preventative interventions and programs tend to be funded out of governments’ discretionary budgets and are often the first thing that is cut when budgets are tight.... There is not necessarily something inherent in a pay-for- success contract that necessitates that [continued government payment is] what happens next... even if there were, many people would question how steadfast that is - is there really a way to hold governments to that. -- Jessica LaBarbera, Director of Strategic Innovation, Nonprofit Finance Fund
    50. 50. + The risk is that the government might ask for more compliance over time which would add to the costs of program delivery and could detract from service levels and/or returns to investors. It is up to both the intermediary and the service providers to draw a line in the sand on this potential in order to protect social outcomes and commercial returns by ensuring the government sector’s compliance costs are fixed at the beginning of the program. -- Specialist familiar with Social Impact Bond structuring issues
    51. 51. + If the first round is successful, a SIB is definitely repeatable. It can be continually repeated until it gets to the point where the government will take it over. -- Center for American Progress
    52. 52. + It is possible that in the future the service providers could serve as the intermediaries. This is already happening to some degree in [the Salt Lake City SIB]. -- Center for American Progress
    53. 53. + In political environments that have less established cultures of good governance, investors more intensely scrutinize the mechanisms in place to ensure that governments will make performance payments if/when they come due. Challenges such as unease over government solvency, rapidly leadership turnover, and political corruption increase the perceived risks born by investors. Mitigating this payment risk (also called appropriations risk) needs to be addressed for Pay for Success contracting to successfully spread from the U.S., U.K., and Australia to emerging markets such as South Africa. -- Scott Kleiman, Government Innovation Fellow, Harvard Kennedy School’s SIB Lab
    54. 54. + Some governments have a poor credit history and enter into contracts they do not pay out on. Perhaps for these governments, if we had greater media and investor presence, that would pressure the government into paying up on their contracts… -- Emma Tomkinson, Social Impact Analyst, Australia
    55. 55. + I always say the Social Impact Bond is an agreement between parties and you've got it when you've got an agreement. You don't have it when you've got a financial model - you could have the best financial model in the world, that doesn't mean that everyone's going to agree to it... It's about figuring out what those parties need, providing the information they need, negotiating. -- Emma Tomkinson, Social Impact Analyst, Australia
    56. 56. + SIBs are the tip of the spear, a foot in the door for more creative instrument[s]. -- Kippy Joseph, Associate Director, The Rockefeller Foundation
    57. 57. + Appendix B: SIB Research Peterborough, UK GENERAL INFORMATION The Peterborough SIB was developed by Social Finance and the Minister of Justice, with two goals: reducing recidivism and testing new social financing instruments. The goal of the project is to reduce recidivism by at least 10 percent. Different organizations are grouped under a new NGO, One Service, to increase the intervention scope. A commissioner is included to cover the Bond Principal and the Minister of Justice will only pay for the return. Location Peterborough, Cambridgeshire, UK. Big Lottery Fund UK Commissioner Different Charities Investor One Service (St Gilles Trust YMCA Ormiston Trust & Others) Implementers Social Finance Intermediary Minister of Justice Payer University of Leicester and QinetiQ Evaluator Source: The Minister of Justice, UK
    58. 58. + Appendix B: SIB Research Peterborough, UK TERMS OF CONTRACT Contract Duration  September 2010 – August 2016 Key Dates: September 2010 First SIB is launched for HMP Peterborough August 2012 First Stage is completed and evaluators start assessing the intervention June 2013 First evaluation interim results by QinetiQ and Leicester University, the draft reports says recidivism was reduced by 23% Anticipated: August 2014 First Payment made after evaluation reports are completed. Anticipated: August 2016 Second evaluation completed and payment if successful. Interventions ends. Anticipated: August 2018 Third evaluation completed and payment if successful. SIB ends. Investment  Various Charities: £5M in three stages of 24 months each Source: The Minister of Justice, UK
    59. 59. + Appendix B: SIB Research Peterborough, UK Outcome Payment If recidivism goals are met:  The Big Lottery Fund will pay £1.7M after each stage and the Minister of Justice will pay a 13% return on top of that if a 10% reduction has been met. If recidivism goals are not met:  A new assessment at the end of the three stages will be made and if a 7.5% overall reduction has been achieved, the Big Lottery Fund will pay £5M and the Minister of Justice will pay the promised 13% return 1Source: The Minister of Justice, UK “The Peterborough SIB is too small to deliver substantial ‘cashable’ savings (monetized benefits). The ability of the SIB model to lead to identifiable savings for government is yet to be tested, if the SIB model is implemented on a larger scale.”1
    60. 60. + Appendix C: SIB Research Teens and Toddlers SIB GENERAL INFORMATION • The Teens & Toddlers program aims to support more than 1150 young people aged 14 to 16 who are at risk of becoming NEET over a three and a half year period. • The first stage of the intervention is an 18 weeks program in which teenagers are paired as a mentor and role model to a child in a nursery, developing a series of soft skills that will prevent them from becoming NEET. • On the second stage of the program, after the initial 18 weeks, teenagers join a trusted learning community to talk about life and school goals with the support of a facilitator. • Additional fund raising as main motivation to engage in SIB • Considering using success evidence of the program to structure new SIBs with local governments as payers Location: Manchester, UK Bridges Ventures, Barrow Cadbury, Esmée Fairbairn, Big Society Capital, CAF, Impetus Investor Teens & Toddlers Implementers T&T Innovation Special Purpose Vehicle DWP’s Innovation Fund Payer Social Finance UK Performance Manager National Centre for Social Research and Insite Research and Consulting Evaluators
    61. 61. + Objective of the Innovation Fund Pilot initiative aimed at testing new social investments and delivery models to support disadvantaged young people. It will pay for outcomes directly related to increasing future employment prospects, preventing teenagers to become NEETs1 Teens & Toddlers is 1 of 10 SIBs commissioned via open competition by the DWP’s Innovation Fund Appendix C: SIB Research Teens and Toddlers SIB Common Structure of Innovation Fund’s SIBs • Maximum outcome payments: £ 28.4m • Estimated total private investment: £10m • SIBs were commissioned over two rounds • First round: 6 Social Impact Bonds • Launched in summer 2011, projects started in April 2012 • £8,200 cap per participant • Second round: 4 Social Impact Bonds, including Teens & Toddlers • Launched in spring 2012, projects started in November 2012 • £11,700 cap per participant • SIBs are 100% pay by results • Partnerships bid a price per outcome • There is no real cap on return • Payments are made on a monthly basis • Outcomes are considered up to 26 weeks after completion of the program 1: Not in Education, Employment or Training. 2: £3,500 after 13 weeks, additional £2,000 after 26 weeks
    62. 62. + Appendix C: SIB Research Teens and Toddlers SIB 1: Not in Education, Employment or Training. 2: £3,500 after 13 weeks, additional £2,000 after 26 weeks Outcome Maximum payment Improve attitude to school* £700 Improved attendance at school* £1,400 Improved behavior at school * £1,300 QCF Entry level qualification* £900 Level One NQF* £1,100 Level 2 NQF* £3,300 Level 3 NQF £5,100 Entry into first employment £5,5002 Round 2 proxy outcomes and maximum payments Outcome and Payments • Bidders pick a mix from this list and propose expected payments per outcome, up to the maximum payment set by the DWP • Teens & Toddlers picked outcomes with *
    63. 63. + Appendix C: SIB Research Teens and Toddlers SIB TERMS OF CONTRACT Contract Duration  Contract: November 2012 – May 2016 Key Dates Investment • Bridges Ventures will invest ~50% of the total SIB of the £800k- £1.2 million to fund the program • Initial expectations of 8-14% ROI. • First payments aligned with expectations • Would have been comfortable investing 100% of total capital • Willing to further invest in T&T • Payment cap of £3.25 million, too high to be considered a cap on returns October 2012 T&T Starts delivering the program May 2016 End of Contract Nov 2016 Outcomes paid up to 6 months after the contract Every month Payments are made on a monthly basis
    64. 64. + Appendix D: SIB Research London Rough Sleeping SIB GENERAL INFORMATION The London Rough Sleeping Social Impact Bond was developed by the Department for Communities and Local Government (DCLG) and the Greater London Authority (GLA) to try to improve outcomes for a group of 831 persistent rough sleepers (defined as individuals who have been recorded sleeping on the street and/or have stayed in a London rough sleeping hostel in the last three months, and who have been recorded sleeping on the street at least six times over the last two years) in London. The intention of the SIB is to focus on these individuals over a three year period to try to improve their outcomes and tackle the fundamental issues which often prevent them benefiting from existing service provision. Location: Greater London, UK Big Issue Invest, CAF Venturesome, Orp Foundation Investors St. Mungo’s & Thames Reach ImplementersSocial Finance Intermediary Department for Communities and Local Government Payer Greater London Authority Evaluator
    65. 65. + Appendix D: SIB Research London Rough Sleeping SIB TERMS OF CONTRACT Contract Duration  November 2012 – October 2015 Key Dates: August 2011 GLA/DCLG commissioned feasibility study from Social Finance and Young Foundation February 2012 DCLG funding agreed upon, subject to minimum outcomes being achieved September 2012 Contracts awarded November 2012 Service commenced February 2013 and quarterly thereafter Outcome payments Anticipated: October 2015 Service ends Anticipated: October 2016 End of period in which sustainment outcomes can be claimed Investment  DCLG provides GLA with up to £5M depending on outcomes achieved and costs incurred
    66. 66. + Appendix D: SIB Research London Rough Sleeping SIB Outcome and Cost Savings The five outcomes are:  Reduction in the number of individuals with bedded down street contact (found sleeping on the street by homelessness outreach teams) each quarter;  Confirmed sustainment of tenancy in a non-hostel setting;  Confirmed reconnection to country in which individual enjoys local connections;  Sustainment of volunteering, part-time or full-time employment; and  Decrease in the average number of accident and emergency (A&E) episodes per person per year Type of Cost Cost Estimates Used in Model ($) Cost Estimates Include Rough sleeping costs £1,664 Outreach services Accommodation costs £3,818 Temporary accommodation and tenancy breakdowns Criminal justice costs £10,693 Reconviction costs and police time Employment costs £2,600 Job seeker's allowance and employment support allowance Health costs £1,890 Unplanned hospital usage (A&E and ambulance) Estimated average cost per person £20,000 ---
    67. 67. + Appendix E: SIB Research Utah High Quality Preschool Program GENERAL INFORMATION The Utah High Quality Preschool Program provides targeted curriculum to improve academic performance for at-risk 3 and 4 year olds. Students will be identified based on their scores in a standardized test. Based on these test results, children scoring outside of a predefined range will enter the Utah High Quality Preschool Program. The pilot includes 600 students and will follow them over the course of 14 - 15 years, or until they finish high school. Returns to investors will be based on cost avoidance of incorrectly identifying children for special education programs, estimated at $26,000 per child. Assessment of results will be made on an annual basis and the first payment will be triggered at the start of 3rd grade. Location State of Utah Goldman Sachs, Urban Investment Group Investor The Utah High Quality Preschool Program, Granite School District Implementer Untied Way of Salt Lake City Intermediary Salt Lake City Council Payer Utah State University Evaluator JB Pritzker Investor
    68. 68. + Appendix E: SIB Research Utah High Quality Preschool Program TERMS OF CONTRACT Contract Duration  Contract: Follows student from start of program to the end of high school (2013 – 2028) Key Dates: September 2005 Granite School District was recipient of US Department of Education Early Reading First Grants and piloted the program with this funding 2007 Initial data indicating the success of the program available 2010 United Way of Salt Lake City committed to fund the “proof of concept” August 2013 Details of broader scale SIB finalized with investors September 2013 Programs launched at the start of the 2013-2014 school year March 2014 The State of Utah passed legislation to roll out SIB funding state-wide (Anticipated) 2018 - 2019 First payment is planned to coincide with the 3rd grade (Anticipated) 2027 - 2028 Final payments disbursed Investment  $7M committed from Goldman Sachs ($4.6M) and JB Pritzker ($2.4M)
    69. 69. + Appendix E: SIB Research Utah High Quality Preschool Program Outcome Payment  Years 1-8: Payments of 95% of annual cost avoided per child ($2,470) for kindergarten through 6th grade  Years 9–15: Payments of 40% of annual costs avoided per child ($1,040) after 6th grade  Plus 5% return per annum dependent on outcomes  Approximately 1 payment is needed per child over the life of the SIB for the investor to recoup the investment plus the 5% interest  An estimated $7 of cost avoidance for taxpayers will be realized for each $1 invested in the program (e.g. benefits realized through lower future crime, lower drop out rates) Investment  $1M of the $7M investment will be used to fund the first 600 students in the program Years 1 - 8 Years 9 - 15 Total Savings Cost Savings for Taxpayers (per year)* $2,607 per child $2,607 per child $39,105 per child Payment Triggered for Investors (per year)* $2,470 per child $1,040 per child $26,000 per child *These are costs avoided for each child that was kept out of special education and would have been placed in special education without the intervention Source:
    70. 70. + Appendix F: SIB Research New South Wales’s Newpin SBB GENERAL INFORMATION The New Parent and Infant Family Support Social Benefit Bond (Newpin SBB) provides intensive support to parents with the goal of supporting successful restoration of children currently in foster care. About 700 families will be referred to the Newpin program over the 7-year SBB with a target of successful restoration rate of 65%. Returns to investors will vary based on the restoration rate achieved with an early termination of the SBB possible at the 3-year assessment. Assessment of counterfactual restoration rates will be made during the first 3 years of the SBB. Location New South Wales, Australia Trust composed primarily of HNWIs* Investor UnitingCare Burnside’s Newpin program Implementer Social Ventures Australia (SVA) Intermediary NSW Treasury Department Payer NSW Children’s Court Evaluator * High Net Worth Individuals Source: The Knowledge Box & Social Ventures Australia NSW Department of Family and Community Services Government Supporter
    71. 71. + Appendix F: SIB Research New South Wales’s Newpin SBB TERMS OF CONTRACT Contract Duration  July 2013 – June 2020 Key Dates: September 2011 NSW Treasury Department issues Request for Proposal for SBBs March 2012 UnitingCare Burnside with Department of Family and Community Services succeeds in RFP March 2013 SBB contract signed by government and UnitingCare Burnside July 2013 Start of contract Anticipated: 2016 – 2017 3-year assessment period Anticipated: June 2020 End of contract Anticipated: September 2020 Final payments disbursed Investment  AUS$7M: loan note issued in a single tranche through special purpose trust managed by SVA  Capital Protection: losses limited to 25% of capital during first 4 years, 50% thereafter
    72. 72. + Appendix F: SIB Research New South Wales’s Newpin SBB Outcome Payment If restoration rate goals are met:  10-12% return per annum dependent on outcomes, see illustrative returns below  Maximum upside capped at 15% return per annum over life of bond If restoration rate goals are not met:  3-year assessment period: possibility of early termination of SBB in case of poor performance after first 3 years, in this case 75% of principal and 5% interest is guaranteed  Years 4-7: 50% of principal is guaranteed regardless of restoration rate achieved; 100% of principal repaid upon maturity if program achieves at least 55% restoration rate – interest rate varies depending on restoration rate achieved Illustrative returns Restoration Rate Interest Rate Principal Payment on Maturity 60% 7.5% 100% 65% (Target) 12.0% 100% 70% 15.0% 100% Source: Social Ventures Australia
    73. 73. + Appendix G: SIB Research New York City’s Rikers Island SIB GENERAL INFORMATION The Adolescent Behavioral Learning Experience (ABLE) is specifically focused on New York City’s Rikers Island Jail in collaboration with Mayor Bloomberg as part of his Young Men’s Initiative. Juveniles (16- to 18-years-old at the time of admission) incarcerated at the jail have a one-year readmission rate approaching 50 percent. The goal of the project is to reduce recidivism by at least 10 percent. If the program reaches this target, Goldman Sachs recoups its investment; if the target is exceeded, the City will have saved substantial money and will pay a return on a capped, sliding scale. Location New York City, New York, USA Bloomberg Philanthropies Guarantor Goldman Sachs Investor Osborne Association, Friends of Island Academy Implementers MDRC Intermediary City of New York Payer Vera Institute of Justice Evaluator Source: “Key Partners in NYC’s Social Impact Bond.”
    74. 74. + Appendix G: SIB Research New York City’s Rikers Island SIB TERMS OF CONTRACT Contract Duration  Pilot Program: February – June 2012  Contract: September 2012 – August 2015 Key Dates: August 2012 Mayor Bloomberg announces launch of U.S.’s first SIB January 2013 Program goes full scale with ABLE program Anticipated: Summer 2015 First evaluation completed by Vera Institute of Justice using a 12 Month Measurement Period Anticipated: July 2015 First Payment made Anticipated: Summer 2016 Second evaluation completed by Vera Institute of Justice using a 24 Month Measurement Period Anticipated: July 2017 Second payment made Investment  Goldman Sachs: $9.6M loan to MDRC to run ABLE program  Bloomberg Philanthropies: $7.2M grant to guarantee part of Goldman loan and fund MDRC pilot and intermediary costs
    75. 75. + Appendix G: SIB Research New York City’s Rikers Island SIB Outcome Payment If recidivism goals are met:  The Department of Correction pays MDRC $0-$11.7M stepped according to results (see table below). The payment is used to reimburse Goldman for the initial loan plus an ROI of -$2.4M to $2.1M.  MDRC works with Bloomberg Philanthropies to report on the $7.2M for future efforts. If recidivism goals are not met:  MDRC uses Bloomberg Philanthropies’ $7.2M to repay Goldman Reduction in Re-Admission Rate Projected Long Term City Net Savings ($) City Payment to MDRC ≥20.0% $20,500,000 $11,712,000 ≥16.0% $11,700,000 $10,944,000 … … … ≥10.0% (breakeven) $ ≥ 1,000,000 $9,600,000 ≥8.5% $ ≥ 1,000,000 $4,800,000 Source: Olson, J., & Phillips, A. “Rikers Island: The First Social Impact Bond in the United States.” united-states.pdf