Social Impact Bonds by CASEi3

+

CASEi3 Social Impact Bond ResearchPrepared 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

+Agenda

Problem

Approach

5 Goals of SIBs

Stakeholder Overview/Motivation

Future of SIBs

Implications for The Safety Lab

+Problem

+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

+Approach

+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)

+5 Goals of SIBs

+“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

+Goal 1: The SIB will have a positive impact on the beneficiaries and effective metrics for measuring outcomes

Positive impactFunding from the SIB will ultimately leave a positive impact on the beneficiaries by mitigating or eliminating the social problem.

With measurable outcomesThe effect on the beneficiaries can be monitored and evaluated on a quantifiable basis, with logical interim evaluations.

That pay for successRepayment will only occur if and when the positive impact reaches the determined threshold, indicating the program’s success.

+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

+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.

+Goal 2: Decisions to invest in social impact bonds are motivated by interest in ROI

Capital ProtectionIn 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 ReturnsMost SIBs place a ceiling on the level of return an investor can earn.

Risk AssessmentThe 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

+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 InvestorsSocial

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

+Goal 3: The SIB will provide cost savings to the payer who is typically the government

Monetizable issueThe 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 efficiencyIf 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 impactCost savings to the payer may come from preventing negative impact and thus avoiding future costs born by the government.

+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.

+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.

+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

+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

+Goal 5: The SIB will allow different proven programs to scale up

Proven ModelThe organization’s model for a specific intervention is already working and the outcomes can be measured

ScalableThe size of the intervention will increase with the SIB, and has the potential for an even larger increase after successful completion of the SIB

ContinuousAfter 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:

+

SIB

?

Interventions need to scale by themselves before being eligible for a SIB

Seed grants

Institutional grants

ImpactInvestors Government

s

• 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

+Stakeholder Overview/Motivation

+SIB Stakeholder Overview

Other Stakeholders

Investor ImplementerIntermediary

Payer Evaluator

+SIB Stakeholders: PayerDefinition

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 Stakeholder

s

Investor ImplementersIntermediar

y

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 GovernmentRough Sleeper SIB Department of Communities and

Local GovernmentTeens & Toddlers

SIBDepartment of Work and Pension

Utah High Quality Preschool SIB

Salt Lake County Council

+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

+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 Stakeholder

s


y

Payer Evaluator

SIB ImplementerNewpin 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 ReachTeens & Toddlers

SIB Teens & Toddlers


Utah High Quality Preschool Program

+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


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

+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 Stakeholder

s


y

Payer Evaluator

SIB Primary Investor

Newpin SBB SVA Trust

Peterborough SIB Various charitiesRiker’s Island SIB Goldman SachsRough Sleeper SIB Big Issue InvestTeens & Toddlers

SIB Bridges Ventures

Utah High Quality Preschool SIB Goldman Sachs

+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


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

+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 Stakeholder

s


y

Payer Evaluator

SIB Intermediary

Newpin SBB Social Ventures AustraliaPeterborough SIB Social Finance UKRiker’s Island SIB MDRCRough Sleeper SIB Social Finance UKTeens & Toddlers

SIB Social Finance UK


United Way ofSalt Lake City

+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


• 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

+Future of SIBs

+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

+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.

+Implications for The Safety Lab

+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

+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

+Appendix

+Appendix A: Interview Quotes

+

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

+

[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

+

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

+

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

+

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

+

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

+

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

+

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

+

[A guarantor] mitigates the risk, but nobody makes a deal because there’s a guarantee.

-- Andrea Phillips, VP Urban Investment Group,Goldman Sachs

+

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

+

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

+

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

+

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.


+

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].


+

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

+

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…


+

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.


+

SIBs are the tip of the spear, a foot in the door for more creative instrument[s].

-- Kippy Joseph, Associate Director, The Rockefeller Foundation

+Appendix B: SIB ResearchPeterborough, 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 CharitiesInvestor

One Service(St Gilles

TrustYMCA

OrmistonTrust & Others)

Implementers

Social Finance

Intermediary

Minister of JusticePayer

University of Leicester

and QinetiQ

Evaluator

Source: The Minister of Justice, UK


TERMS OF CONTRACTContract 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


Outcome PaymentIf 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

+Appendix C: SIB ResearchTeens 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, ImpetusInvestor

Teens & Toddlers

Implementers

T&T Innovation

Special Purpose Vehicle

DWP’s Innovation

FundPayer

Social Finance UK

Performance Manager

National Centre for

Social Research and Insite Research

and ConsultingEvaluators

+

Objective of the Innovation FundPilot 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 ResearchTeens 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


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* £700Improved attendance at school* £1,400Improved behavior at school * £1,300QCF Entry level qualification* £900Level One NQF* £1,100Level 2 NQF* £3,300Level 3 NQF £5,100Entry 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 *


TERMS OF CONTRACTContract 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 ContractNov 2016 Outcomes paid up to 6 months

after the contract

Every month

Payments are made on a monthly basis

+Appendix D: SIB ResearchLondon 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

FoundationInvestors

St. Mungo’s & Thames

ReachImplementer

sSocial

FinanceIntermediary

Department for

Communities and Local

GovernmentPayer

Greater London

AuthorityEvaluator


TERMS OF CONTRACTContract Duration November 2012 – October 2015

Key Dates:August 2011 GLA/DCLG commissioned feasibility study from Social Finance and

Young FoundationFebruary 2012 DCLG funding agreed upon, subject to minimum outcomes being

achievedSeptember 2012 Contracts awardedNovember 2012 Service commencedFebruary 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


Outcome and Cost SavingsThe 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 yearType 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 andpolice time

Employment costs £2,600 Job seeker's allowance andemployment support allowance

Health costs £1,890 Unplanned hospital usage (A&E and ambulance)

Estimated average cost per person £20,000 ---

+Appendix E: SIB ResearchUtah 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

GroupInvestor

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 PritzkerInvestor


TERMS OF CONTRACTContract 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 available2010 United Way of Salt Lake City committed to fund the “proof of

concept”August 2013 Details of broader scale SIB finalized with investorsSeptember 2013 Programs launched at the start of the 2013-2014 school yearMarch 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)


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

programYears 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 interventionSource: http://www.goldmansachs.com/what-we-do/investing-and-lending/urban-investments/case-studies/impact-bond-slc-multimedia/fact-sheet-pdf.pdf

http://www.goldmansachs.com/what-we-do/investing-and-lending/urban-investments/case-studies/impact-bond-slc-multimedia/fact-sheet-pdf.pdf

http://www.goldmansachs.com/what-we-do/investing-and-lending/urban-investments/case-studies/impact-bond-slc-multimedia/fact-sheet-pdf.pdf

+Appendix F: SIB ResearchNew 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

DepartmentPayer

NSW Children’s

CourtEvaluator

* High Net Worth IndividualsSource: The Knowledge Box & Social Ventures Australia

NSW Department of Family and Community

ServicesGovernment

Supporter


TERMS OF CONTRACTContract 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 BurnsideJuly 2013 Start of contractAnticipated: 2016 – 2017 3-year assessment periodAnticipated: June 2020 End of contractAnticipated: 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


Outcome PaymentIf 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

+Appendix G: SIB ResearchNew 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 Philanthropie

sGuarantor

Goldman Sachs

Investor

Osborne Association,Friends of

Island Academy

Implementers

MDRCIntermediary

City of New York

Payer

Vera Institute of JusticeEvaluator

Source: “Key Partners in NYC’s Social Impact Bond.” http://www.mdrc.org/key-partners-nycs-social-impact-bond


TERMS OF CONTRACTContract 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 programAnticipated: Summer 2015

First evaluation completed by Vera Institute of Justice using a 12 Month Measurement Period

Anticipated: July 2015 First Payment madeAnticipated: 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


Outcome PaymentIf 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 $4,800,000Source: Olson, J., & Phillips, A. “Rikers Island: The First Social Impact Bond in the United States.” http://www.frbsf.org/community-development/files/rikers-island-first-social-impact-bond-united-states.pdf

Social Impact Bonds by CASEi3

Government & Nonprofit

Transcript of Social Impact Bonds by CASEi3