Social Impact Bond10:00am – 11:15am

Facilitators: Brian Parker, McGuire Woods / Sam Reiman, McCune Foundation

Speakers: Simon Jawitz, Growth Philanthropy Network / Bill Pinakiewicz, Nonprofit Finance Fund

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Nonprofit Finance Fund®

An Introduction to the Social Impact Bond

Presented by:

Bill PinakiewiczDirector, New England Program

May 12, 2011

4nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®

Social Impact Bond

Structure

The Social Impact Bond - What is it all about?

Voluntary

Government Payer Retains a Portion of

“Cashable” Savings fromSuccessful Investments

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 Obligated to Pay

Investors From Portion of “Cashable” SavingsIF Contracted Social

Outcome Target Is Hit

Investment Success =Achieving Contractually Agreed Social Outcome

Targets (Metric and Timing)

Measurement of Outcomes

Against Targets is Performed by anIndependent Expert

100% of Success Risk Shifted From

Government Payer to Private Investors

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Social Impact Bonds – The Appeal and the Potential

Social Impact Bonds

Innovative structure for new,

supplemental source of multi-year funding

for service providers

2

Monetizes the positive

social impact of prevention

& early intervention

Cost savings to

government payers

compared to current

practices

Aligns interest

of investors, nonprofits & government on positive outcomes

Integrates social &

financial ROI for theimpact

investor pool

More productive reallocation

of risk among

investors, government

& service providers

6nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®

Social Impact Bonds – Underpinnings of Feasibility in the United States

Social Impact Bonds

Pockets of active

support “in concept”

at the federal, state &

local levels

2

Pool of potential investor

demand for structures

that combine social & financialreturns

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 informationon “lessons

learned”

Social Impact Bonds

Highlymotivated & capable

intermediary pool actively

vetting SIBopportunities

7nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®

Social Impact Bonds – Barriers to Feasibility in the United States

Social Impact Bonds

2

Highly complex & customized multi-party

transactions - hard to do!

Multi-layer & overlappinggovernment

funding creates

complexity &difficulty

Readiness of service

providers to adapt to SIBexecution

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

Proof of concept not yet achieved

in the original & only

completed transaction

Social Impact Bonds

8nonprofitfinancefund.org ©2011 Nonprofit Finance Fund®

Social Impact Bonds – Readiness and Delivery Issues for Service Providers

Service Provider Readiness

History & culture

of using outcome

metrics to evaluateprogram

performance

2

Business models &executives

withcollaborative

servicedelivery capacity

& experience

Institutional capacity

to support scaling

up & time horizon

requirements of SIBs

Multi-year planning,

budgeting &execution

expertise tomanage

upfront SIB capital

Board support for SIB

business model

capacity demands &

reputational risk

Track record of success in setting & achieving

challenging outcomemetric targets

9

Social Impact Bonds

“The long and winding road”

10

Social Impact Partnership

(LLP)

GeneralPartner

InvestorsLPs

Service Provider

FederalStateLocal

Government

Service Provider

Service Provider

$ SIB

$ $ $Contra

ctContract

Contract

Outcomes Based

Contract

11

Investors

NonprofitOrganization

FederalStateLocal

Government

SIB $

Outcomes Based

Contract

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.

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Major Hurdles

1. 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?

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2. 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

3. Besides cost savings for the government, what other social benefits does the Program generate?

How large, compelling and quantifiable are the social benefits?

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4. 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?

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5. Will investors be willing to take the risk? Financial investors? Social impact investors?

6. 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

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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

Thank you from the Greater Pittsburgh Nonprofit

Partnership!

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