SOCIAL IMPACT BONDS 101
Webinar
February 26th, 2014
EPIP Host: Michael Barham
Speakers: Robert Esposito and Shawn Pelsinge...
EPIP
•  Emerging Practitioners in Philanthropy (EPIP) is a

national network of foundation professionals and social
entrep...
Public Allies
•  Public Allies’ Mission is to advance new leadership to

strengthen communities, nonprofits and civic part...
Announcements
•  2014 National Conference - Unity Summit
•  With Joint Affinity Groups – June 6th - 8th
•  Registration no...
Housekeeping
•  You’ll all be on mute
•  Calling in on the phone? Mute your computer, please.
•  Use the question box for ...
Today’s Speakers
•  Robert Esposito, Jacobson Fellow in Law & Social Enterprise, NYU
•  Shawn Pelsinger, Jacobson Fellow i...
SOCIAL'IMPACT'BONDS'101'
Shawn'Pelsinger,'Esq.'&'Robert'T.'Esposito,'Esq.''
Overview'
What'are'Social'Impact'Bonds?'
!  Broader'Context'
!  The'Peterborough'Project'
!  Growth'
!  U.S.'Developments'...
What'are'Social'Impact'Bonds?'
! 

“An$arrangement$between$one$or$more$
government$agencies$and$an$external$organiza6on$
w...
What'are'Social'Impact'Bonds?'
! 

Key'Features'
!  Limited'control'on'how'external'organizaOon'carries'

out'task'
!  Gov...
What'are'Social'Impact'Bonds?'
! 

Common'MisconcepOons'
!  All'SIBs'are'“PayWForWSuccess”'but'not'vice'versa;'
"  SIBs'ar...
What'are'Social'Impact'Bonds?'
Broader'Context'
! 
! 

! 

PayWforWSuccess'is'not'a'new'idea'
World'Bank/InternaOonal'Development'AssociaOon'
Performance...
The'Peterborough'Project'
! 
! 

! 
! 

! 

! 

In'2010,'Social'Finance'organizes'first'SIB'
Broad'Goal:'to'“reduce'reWoffen...
InternaOonal'Growth'
InternaOonal'Growth'
InternaOonal'Growth'
U.S.'Developments'–'Rikers'Island''
! 

! 

! 

! 

! 

! 

! 

! 

In'August'2012,'Goldman'Sachs’'Urban'Investment'Group'...
U.S.'Developments'–'Rikers'Island''
U.S.'Developments'–'Rikers'Island''
Emerging'Trends:'A'FoundaOon'PerspecOve'
! 

! 

! 

! 
! 

Rikers'Island'SIB'–'Bloomberg'Philanthropies'provided'
75%'gua...
Emerging'Trends:'Investor'PerspecOve'
Mul>ple'Private'Investors'
! 

Peterborough:'17'investors,'sourced'through'private'r...
Emerging''Trends:'EIBs'and'HIBs'
! 

Environmental'Impact'Bonds'–'Proponents'argue'
that'moneOzaOon'of'future'cost'savings...
Emerging''Trends:'Development'Impact'Bonds'
! 

“The'Development'Impact'Bond'is'almost'exactly'the'
same'as'the'Social'Imp...
CriOques:'Negligible'Savings'
! 

In'addiOon'to'the'fiscal'imprudence'of'accruing'
debt'for'social'services,'states'are'gen...
CriOques:'Lack'of'Scalability'
RAND'Europe'found'that'first'SIB'pilot'program'in'
Peterborough,'UK'was'“too'small'to'delive...
CriOques:'Future'of'FoundaOon'Involvement?'
FoundaOons'iniOal'involvement'as'guarantors'
!  As'SIBs'gain'momentum,'need'fo...
CriOques:'Role'of'Banks'in'ProfiOng'from'Public'Service'
! 

Prof.'Mark'Ronsenman,'outspoken'criOc'of'SIBs,'
argues'that'SI...
CriOques:'Unreliable'Metrics

''

Financial'Industry'is'awash'with'metrics'to'
measure'a'company’s'financial'performance'
!...
Conclusion'&'Resources'
! 

! 

! 

Center'for'American'Progress,'Social$Impact$Bonds:$A$Promising$New$
Financing$Model$to...
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EPIP - Social Impact Bonds 101

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Together with Public Allies, EPIP hosted a webinar introducing Social Impact Bonds as a new funding trend. Led by Robert Esposito and Shawn Pelsinger, NYU Law and Social Enterprise Fellows, this webinar covered topics related to social impact bonds, specifically how they are changing the future of funding, philanthropy and social change. Discussion focused on how these tools are being used to make an impact. Robert and Shawn walked us through the nuts and bolts of the social impact bond process, and examined how impending legal changes may take effect. Several case studies were explored.

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EPIP - Social Impact Bonds 101

  1. 1. SOCIAL IMPACT BONDS 101 Webinar February 26th, 2014 EPIP Host: Michael Barham Speakers: Robert Esposito and Shawn Pelsinger
  2. 2. EPIP •  Emerging Practitioners in Philanthropy (EPIP) is a national network of foundation professionals and social entrepreneurs who strive for excellence in the practice of philanthropy •  Our mission is to develop emerging leaders committed to building a just, equitable, and sustainable society.
  3. 3. Public Allies •  Public Allies’ Mission is to advance new leadership to strengthen communities, nonprofits and civic participation
  4. 4. Announcements •  2014 National Conference - Unity Summit •  With Joint Affinity Groups – June 6th - 8th •  Registration now open! •  Next Webinar: •  An Hour with EPIP’s Newest Executive Coach •  Wednesday, March 12th, 3pm EST •  Upcoming Events •  epip.org/events
  5. 5. Housekeeping •  You’ll all be on mute •  Calling in on the phone? Mute your computer, please. •  Use the question box for questions or technical difficulties •  Time for Q&A •  We’ll be recording this webinar
  6. 6. Today’s Speakers •  Robert Esposito, Jacobson Fellow in Law & Social Enterprise, NYU •  Shawn Pelsinger, Jacobson Fellow in Law & Social Enterprise, NYU
  7. 7. SOCIAL'IMPACT'BONDS'101' Shawn'Pelsinger,'Esq.'&'Robert'T.'Esposito,'Esq.''
  8. 8. Overview' What'are'Social'Impact'Bonds?' !  Broader'Context' !  The'Peterborough'Project' !  Growth' !  U.S.'Developments' !  Emerging'Trends' !  CriOques' !  Conclusion' ! 
  9. 9. What'are'Social'Impact'Bonds?' !  “An$arrangement$between$one$or$more$ government$agencies$and$an$external$organiza6on$ where$the$government$specifies$an$outcome$(or$ outcomes)$and$promises$to$pay$the$external$ organiza6on$a$pre>agreed$sum$(or$sums)$if$it$is$ able$to$accomplish$the$outcome(s).”$ !  >Center$for$American$Progress'
  10. 10. What'are'Social'Impact'Bonds?' !  Key'Features' !  Limited'control'on'how'external'organizaOon'carries' out'task' !  Government'cooperaOon'with'external'organizaOon' !  Agreed'upon'target'populaOon'and'success'metrics' !  Payments'conOngent'upon'hiUng'targets'
  11. 11. What'are'Social'Impact'Bonds?' !  Common'MisconcepOons' !  All'SIBs'are'“PayWForWSuccess”'but'not'vice'versa;' "  SIBs'are'an'innovaOve'financing'soluOon'for'PayWForW' Success'projects' !  SIBs'are'not'bonds'in'the'tradiOonal'sense' "  SIBs'retain'both'debt'and'equity'characterisOcs' !  SIBs'need'not'involve'mulOple'thirdWparty' collaborators' "  However,'quite'common'for'thirdWparty'parOcipaOon'
  12. 12. What'are'Social'Impact'Bonds?'
  13. 13. Broader'Context' !  !  !  PayWforWSuccess'is'not'a'new'idea' World'Bank/InternaOonal'Development'AssociaOon' PerformanceWBased'Debt'BuyWDown'(+'Social'Impact' Performance'Guarantee)' Department'of'Labor'Workforce'InnovaOon'Fund' (matching'program)' !  $24'million'to'state'level'agencies'in'NY/MA' !  !  Department'of'JusOce'Second'Chance'Act'($10'million)' Massachusefs'Social'InnovaOon'Financing'legislaOon'
  14. 14. The'Peterborough'Project' !  !  !  !  !  !  In'2010,'Social'Finance'organizes'first'SIB' Broad'Goal:'to'“reduce'reWoffending'amongst'male'prisoners' leaving'244'HMP'Peterborough'who'have'served'a'sentence'of'less' than'12'months”' Specific'Metric:'ReducOon'of'7.5%'of'exWprisoner'reWconvicOon.' Investment:'£5'million'($8'million)'from'17'investors'to'fund'the' “One*Service”'program' IncenOve:'If'the'program'is'successful,'the'UK'government'will'pay' Social'Finance,'capped'at'$12'million;'individual'returns'range' between'2.5%'and'13%' Measurement:'The'BriOsh'government'and'Social'Finance'agreed' that'independent'researchers'should'determine'whether'the' outcome'is'achieved.'
  15. 15. InternaOonal'Growth'
  16. 16. InternaOonal'Growth'
  17. 17. InternaOonal'Growth'
  18. 18. U.S.'Developments'–'Rikers'Island'' !  !  !  !  !  !  !  !  In'August'2012,'Goldman'Sachs’'Urban'Investment'Group'and'New'York'City'announced'first' U.S.'SIB' Step'1:'Bloomberg'Philanthropies'will'make'a'$7.2M'grant,'funded'annually'over'4'years,'to' MDRC' Step'2:'GS'will'make'a'$9.6M'senior'mulOple'draw'term'loan'to'MDRC'paid'out'quarterly' over'4'years' Step:'3'MDRC'will'provide'funding'of'$9.6M'paid'out'over'4'years'to'Osborne,'in'order'to' support'the'direct'costs'associated'with'the'program' Step'4:'Vera'will'measure'the'impact'of'the'program'at'12'and'24'month'intervals'post' release' Step'5:'NYC'will'realize'a'stream'of'savings'from'the'decrease'in'recidivism'and'will'make'up' to'two'Success'Payments'to'MDRC'capped'at'$11.7M.''These'payments'will'be'based'on'the' threshold'decreases'in'recidivism'as'measured'by'Vera' Step'6:'Auer'3'years,'MDRC'will'repay'GS'$2.4M'from'the'Success'Payments'or'from'the' guarantee'fund' Step'7:'MDRC'will'repay'GS'the'Success'Payments'and,'if'necessary,'an'amount'from'the' guarantee'fund'needed'to'repay'the'GS'principal'
  19. 19. U.S.'Developments'–'Rikers'Island''
  20. 20. U.S.'Developments'–'Rikers'Island''
  21. 21. Emerging'Trends:'A'FoundaOon'PerspecOve' !  !  !  !  !  Rikers'Island'SIB'–'Bloomberg'Philanthropies'provided' 75%'guarantee'($7.5'million)' BofAML/NY'State'SIB'–Rockefeller'FoundaOon' provided'a'10%'guarantee'($1.32'million)'' Utah'SIB'–'No'guarantee,'but'philanthropist'J.B.' Pritzker'contributed'$2.4'million'subordinated'loan,' reducing'GS'risk' Massachuse<s'SIB'–'No'guarantee' California'SIBs'–'The'Nonprofit'Finance'Fund,'with' funding'from'The'James'Irvine'FoundaOon,'announced' $2.5'million'to'incubate'SIBs'in'California'
  22. 22. Emerging'Trends:'Investor'PerspecOve' Mul>ple'Private'Investors' !  Peterborough:'17'investors,'sourced'through'private'relaOonships,'consisOng'mostly'of'private'foundaOons'and'individuals.' !  New'York'State:'40'investors,'consisOng'mostly'of'private'foundaOons'and'highWnetWworth'individuals' !  Australia'(restricted'to'wholesale'investors'–'income'>'AU$250,000'or'AU$2.5m'net'worth):' !  !  !  The'Newpin'SBB'was'launched'first'and'raised'AU$7m'from'59'investors.'' The'Benevolent'Society'SBB'raised'AU$10m'in'two'tranches.'The'$2.5m'(no'guarantee'with'up'to'30%'return)'tranche'involves'17' investors'and'the'$7.5m'(capital'guaranteed'with'up'to'10%'return)'tranche'involves'40'investors'including'NRMA'Motoring'&'Services,' Australian'Ethical'Investments'and'Commonwealth'Bank'of'Australia.' Perth,'Scotland:'Investors'have'contributed'between'£5000'and'£50,000'and'are'involved'in'the'intervenOon.'Unique'example'of'combined' investor'+'acOvist.' Retail'Investors' !  Essex:'The'Allia'‘Future'for'Children'Bond’'was'the'first'opportunity'for'retail'investors'to'become'involved'in'a'SIB.'The'Future'for'Children' Bond'was'constructed'of'78%'loan'to'a'social'housing'provider,'20%'investment'in'the'Essex'SIB'and'2%'management'fees.'In'order'to' safeguard'against'illWinformed'investor'mistakes,'the'Bond'was'an'‘advised’'product,'which'meant'that'financial'advisors'had'to'apply'on' behalf'of'investors.' Single'Funder'(some>mes'with'Guarantor)' !  Rikers:'Goldman'Sachs'funded,'Bloomberg'Philanthropies'guaranteed.' State'Funded'(some>mes'with'Guarantor)' !  Utah:'StateWfunded,'J.B.'Pritzker'guaranteed.' Service'Provider'Investor' !  London'Homelessness'SIB'and'the'Benevolent'Society'SBB'both'examples'of'service'provider'investors.' !  Massachusefs:'Roca'has'suggested'it'invest'in'the'MA'SIB,'in'addiOon'to'being'a'service'provider.'
  23. 23. Emerging''Trends:'EIBs'and'HIBs' !  Environmental'Impact'Bonds'–'Proponents'argue' that'moneOzaOon'of'future'cost'savings'is'already' a'staple'of'environmental'finance' !  PotenOal'applicaOons'to'reduced'CO2/GHG'emissions,' water'quality,'reduced'use'of'fossil'fuels' !  Health'Impact'Bonds'–'Fresno,'California'pilot' program'to'provide'prevenOve'care'for'children' with'moderate'to'severe'asthma''
  24. 24. Emerging''Trends:'Development'Impact'Bonds' !  “The'Development'Impact'Bond'is'almost'exactly'the' same'as'the'Social'Impact'Bond,'the'hofest'idea'in' socialWservice'provision'(an'oxymoron'if'ever'there'was' one)'of'the'last'few'years.'One'difference'is'who' repays'investors'if'the'program'succeeds.'With'a'social' impact'bond,'the'government'does.'With'a' development'bond,'payment'would'fall'to' internaOonal'donors'such'as'foundaOons'or' government'agencies'such'as'Britain’s'Department'for' InternaOonal'Development'or'the'U.S.'Agency'for' InternaOonal'Development.”' !  >The$New$York$Times,$June$19,$2013'
  25. 25. CriOques:'Negligible'Savings' !  In'addiOon'to'the'fiscal'imprudence'of'accruing' debt'for'social'services,'states'are'generally' restricted'from'creaOng'liabiliOes'in'their'operaOng' budgets'without'providing'matching'funds.'Thus,'it' should'be'no'surprise'that'Massachusefs,'like'the' UK'naOonal'government,'is'preWfunding'its'pilot'SIB' program.'In'New'York'City,'Bloomberg’s'personal' foundaOon'is'providing'a'grant'on'behalf'of'the' government'to'cover'the'payments.'
  26. 26. CriOques:'Lack'of'Scalability' RAND'Europe'found'that'first'SIB'pilot'program'in' Peterborough,'UK'was'“too'small'to'deliver' substanOal'‘cashable’'savings”'for'the'government'' !  Even'for'a'relaOvely'large'reentry'pilot'program'in' Maryland,'a'10'percent'reducOon'of'recidivism' would'at'best'produce'a'6'percent'discount'to'the' cost'of'operaOng'the'pilot'program—using'highly' opOmisOc'assumpOons.'If'the'costs'do'not'stack'up' in'criminal'jusOce,'it'seems'unlikely'they'would' materialize'in'other'types'of'programs.' ! 
  27. 27. CriOques:'Future'of'FoundaOon'Involvement?' FoundaOons'iniOal'involvement'as'guarantors' !  As'SIBs'gain'momentum,'need'for'guarantors'has' decreased'dramaOcally' !  Have'foundaOons'just'“primped'the'pump”'for'the' private'sector?' !  Will'growth'of'SIBs'provide'a'new'investment' opportunity'for'foundaOons?' ! 
  28. 28. CriOques:'Role'of'Banks'in'ProfiOng'from'Public'Service' !  Prof.'Mark'Ronsenman,'outspoken'criOc'of'SIBs,' argues'that'SIBs'are'undesirable'because'they' allow'banks'to'profit'from'public'services' !  Advocates'for'a'“Wall'Street'Sales'Tax”'to'fund' programs'instead' Are'SIBs'ethical'investments?' !  If'government'permits'private'prisons'to'profit' from'incarceraOon,'why'not'permit'banks'and' impact'investors'to'moneOze'future'savings'and' profit'from'recidivism'reducOon?' ! 
  29. 29. CriOques:'Unreliable'Metrics '' Financial'Industry'is'awash'with'metrics'to' measure'a'company’s'financial'performance' !  Metrics'for'measuring'social'impact'and' performance'are'less'developed'and'less'reliable' !  Without'accurate'metrics'or'industry'standards,'a' SIB’s'social'performance'may'be'distorted' !  Will'market'demands'create'reliable'social' performance'metrics?' ! 
  30. 30. Conclusion'&'Resources' !  !  !  Center'for'American'Progress,'Social$Impact$Bonds:$A$Promising$New$ Financing$Model$to$Accelerate$Social$Innova6on$and$Improve$Government$ Performance'(Feb.'2011),'' hfp://www.americanprogress.org/wpWcontent/uploads/issues/2011/02/ pdf/social_impact_bonds.pdf' McKinsey'&'Company,'From$Poten6al$to$Ac6on:$Bringing$Social$Impact$ Bonds$to$the$US'(May'2012),'' hfp://mckinseyonsociety.com/downloads/reports/SocialWInnovaOon/ McKinsey_Social_Impact_Bonds_Report.pdf' Social'Finance,'Founda6ons$for$Social$Impact$Bonds:$How$and$Why$ Philanthropy$is$Catalyzing$the$Development$of$a$New$Market'(2014),' hfp://www.socialfinanceus.org/sites/socialfinanceus.org/files/Social %20Finance%20White%2'

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