1. 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
2. Share your thoughts! Text “Summit” to 57682 with your feedback and thoughts on today’s event! Share your thoughts on Twitter by adding #GPNPSummit to your tweets!
3. Nonprofit Finance Fund® An Introduction to the Social Impact Bond Presented by: Bill Pinakiewicz Director, New England Program May 12, 2011
4. 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
5. 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
6. 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
7. 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
8. 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
10. 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
11. Investors SIB $ Outcomes Based Contract Federal State Local Government Nonprofit Organization
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 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. 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. Besides cost savings for the government, what other social benefits does the Program generate? How large, compelling and quantifiable are the social benefits?
16. 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. 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
18. 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
19. Thank you from the Greater Pittsburgh Nonprofit Partnership!
20. Workshop Evaluation Text “SIB” to 57682 with your answers to the following questions: Please rate the overall value of this workshop E – Excellent G – Good P – Poor F – Fair Did you learn anything that you will apply at your own organization? Y – Yes N - No Please text other comments and feedback. Submit by hitting “send!” You will receive an auto-reply from the GPNP. Sample text: “SIB E Y This is an interesting alternative funding strategy that I’d like to learn more about.”
