The investor appetite for social impact bonds

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Ian Learmonth, Executive Director, Social Ventures Australia delivered this presentation at the 2013 Social Finance Forum in Sydney/Australia. The two-day event reviewed the benefits of social service bonds, government opportunity and policy that supports the social finance market, the investor appetite for social impact bonds, calculating risk, measuring outcomes, as well as numerous case studies and international expertise.

In 2013 Informa will host the inaugural Social Finance Summit in the UK. The event will be held on the 12th and 13th November at the Hilton London West End. For more information on the outstanding speaker line-up, please visit www.socialfinancesummit.com

Published in: Economy & Finance, Business
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The investor appetite for social impact bonds

  1. 1. Understanding the Impact Investor Marketplace
  2. 2. 1. What’s taken place so far? 2. What’s attracted those investors? 3. What’s been a challenge in building the market? 4. The future - how do we grow this market? Overview
  3. 3. The impact investing landscape in Australia The SEDIF FUNDs1 The Goodstart syndicate Purchase 678 child care centres from ABC Learning 3 Social impact bonds • Bonds to reduce out-of-home-care: • UnitingCare Burnside - Newpin (SVA) • The Benevolent Society • Bond to address recidivism: Mission Australia (SVA) 2 Other initiatives Western Australia • WA Government have commenced a $10m capacity building grant program for social enterprises. 4 The social finance landscape Private investors Commonwealth grant Fund managers Invested in social enterprise
  4. 4. Goodstart Capital Structure
  5. 5. • 44 HNWs and family trusts • Debt obligation - 12% p.a. yield • Significant business with proven government cashflows • Deleveraged capital structure • Strong governance (Board, CEO etc) • Australia’s largest early learning provider Goodstart - Key Features/Attractions
  6. 6. SVA Social Impact Fund Social investors and the Commonwealth government have contributed capital to SVA’s $8.65m Social Impact Fund, which invests in social enterprise in Australia The Social Impact Fund (unit trust) Social enterprise Social enterprise Social enterprise Social investors (unit holders) HNW individuals PAFs Foundations DEEWR grant money The trustee Fund management agreement Trust deed Governed by trust deed Fund agreement
  7. 7. • Requirement for matched funding • The SVA SIF has 33 investors, a mixture of HNWs and Trusts: SIF - Investor profile 9 7 6 4 2 2 0 1 2 3 4 5 6 7 8 9 Individual PAF Family Trust Private company SMSF Family Foundation
  8. 8. • Min $50,000 • Only open to ‘wholesale investors’ (Net Worth $2.5m and/or earnings >$250,000) • Government funds are ‘subordinated’ to investor monies • Expected returns potentially in excess of 9% p.a. • Supporting social enterprise SIF - Key Features/Attractions
  9. 9. 10 SIF - Investments allocated $1.6m (19%) 11 jobs Council approved, GPs hired 37 jobs to date
  10. 10. Social Impact Bonds A social impact bond is a contract where the public sector agrees to pay a private service provider for delivering improved social outcomes that result in government savings Generic structure of a social impact bond Government Service provider Private investor Beneficiary of service Cost savings to government Government pays investors when desired outcomes are met Summary • Private funds used to fund preventative programs • If the program meets agreed targets, the Government saves money and in recognition of cost savings repays investors principal and interest. • If targets are not met, investors may not receive any compensation History • The first (GBP 5m) was arranged by Social Finance UK to reduce recidivism rates at Peterborough prison • A number of new SIB programs are underway in NYC and Boston Bonds in Australia Three pilot impacts bonds are in progress in NSW • Two Bonds to reduce out-of-home-care: • UnitingCare Burnside (SVA) • The Benevolent Society • Bond to address recidivism: Mission Australia (SVA) Private investors fund a social programDirect and indirect cost savings accrue to government Summary
  11. 11. Text slide may show a series of bullets Sample of 24 pt text bullet • Single spacing with 0 pt before line and 0.3 after line • Text box size is 12.4 cm Height and 21.6 cm Width • Text box position is 3 cm Horizontal and 3.4 cm Vertical from top left corner Newpin Social Benefit Bond
  12. 12. 13 Newpin SBB - Structure Newpin SBB Trust SVA UC NSW.ACT NSW Govt 1. $7m funds raised 2. $7m on-lent to UnitingCare $50k p.a. 3. ~$50m over 7 years 4. Interest p.a. + Principal upon maturity 5. Coupon p.a. + Principal upon maturity SBB Investors
  13. 13. Newpin SBB - Breakdown of investors 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 HNW - Trust HNW - Super HNW - Individual Institutional Trust Foundation
  14. 14. 15 Newpin SBB - Investor features Key Protections Interest Rate Min 5% p.a. during first 3 years Principal Downside – First 4 years No greater than 25% Years 5 – maturity No greater than 50% Early Termination at < 45% Restoration Rate (from Year 3) Investors would receive a performance based payment upon early termination Full payout upon most Early Termination Scenarios Refer IM
  15. 15. • Min $50,000 • Only open to ‘wholesale investors’ (Net Worth $2.5m and/or earnings >$250,000) • Attracted two institutional investors (Christian Super & NGS) • Expected returns potentially in excess of 10% p.a. • Engaged with the underlying program Newpin SBB - Key Features/Attractions
  16. 16. 1. Scale, particularly for institutional investors 2. Lack of liquidity 3. Understanding social outcomes as a risk/return feature 4. Track record 5. Open up to retail – associated AFSL issues Challenges in building the market
  17. 17. How do we grow? Issue How to address • Scale Housing, Aged Care, Health, Education • Lack of liquidity Build a secondary market • Understanding social outcomes Build evidence base/measurement • Track record Establish a history, expand offerings • Retail market Confidence
  18. 18. Investor Market place Questions?

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