Social impact bonds (SIBs) in Australia

Aussie SIB mapThere have been eight social impact bond (SIB) contracts signed so far in Australia (I use this definition). Social impact bonds began being referred to as ‘social benefit bonds’ in the state of New South Wales in 2011. This was due to a new Government wanting to continue the previous Government’s social impact bond policy, but put their own stamp on it. The term has also been used by the Queensland Government.

SIB processes have been led by state governments

All social impact bonds in Australia have been initiated by state governments. Four of Australia’s six state governments have signed SIB contracts or are in the process of developing them. Each of these governments has pursued their SIB contracts by releasing an open request for proposals. New South Wales has released four that can be accessed here.

The requests for proposals have resulted in service providers being chosen, sometimes in partnership with financial intermediaries or other parties. They then enter what is referred to as a ‘joint development phase’ where the feasibility and details of contracts are established. Large not-for-profits in Australia are much larger and deliver across a wider range of services than in the UK, so they have the capacity and experience to negotiate directly with government, rather than through an intermediary. Many of these organisations generate millions of dollars income from government contracts annually, so are very experienced in government negotiations. The joint development phases have resulted in outcomes-based contracts between the state government in question and their chosen not-for-profit service providers. Not all projects that have entered this joint development phase have exited, with some projects deemed infeasible. It is worth noting that the first two SIBs have made changes to their payment metrics after observing them in practice.

Aussie SIB process.png


Five out of the six social impact bonds in Australia have raised funds on the open market, following the process above. This has resulted in a greater number and range of investors than SIBs in other parts of the world. Investors include trusts, foundations, institutions (including superannuation/pension funds), charities and high net worth individuals. Individual investment is restricted to ‘wholesale’ investors. A wholesale investor is a finance professional or a ‘sophisticated investor’ i.e. one who has an income of over AU$250,000 per annum for the last two years or assets in excess of AU$2.5 million. An offer restricted to wholesale investors safeguards retail investors from buying products they do not sufficiently understand and is cheaper to issue. The minimum investment for all SBBs has been AU$50,000. All SIBs have been oversubscribed, with the most recent round for NSW mental health and Queensland’s OOHC SIBs reaching their target in one month. One SIB, OnTRACC, is privately financed by a bank and service provider. There are links to the information memoranda of several SIBs in the details below. These documents provided the information for investors considering investment.

Intermediary roles

In some SIBs, intermediaries have only been involved in raising and managing investment, and are thus referred to as ‘financial intermediaries’. For other SIBs, they have been instrumental in program design and contract negotiation. But we haven’t seen them assume the roles of performance management or conducting ‘feasibility studies’ as is common overseas.

Attracting investment

Government initiating the SIB process has led to the general perception that SIBs save governments a lot of money, and that governments should be actively enticing providers and investors to participate by sharing some of those savings.

Because the contract is signed before investors are sought, there is a need to make the SIB attractive to investors. If investors don’t sign up, the new service won’t happen and years of work is wasted. So this leads to a range of efforts to make the investment attractive that we haven’t seen elsewhere.

  1. Most Australian SIBs include a ‘standing charge’, where government pays a fixed amount (which can be up to 50% of contract value) regardless of outcome. In many other SIBs around the world, government payments are only made in response to outcome achievements. This was used in the Benevolent Society Social Benefit Bond to create a ‘guarantee’ of Principal for one tranche of investors.
  2. There are exit or termination points for investors, so that the program can be terminated if early results are not good, and the unspent proportion of the investment returned.
  3. Rates of return to investors are capped much higher than overseas – the maximum rate of return for one tranche of the Benevolent Society SBB is 30% IRR, in comparison to Peterborough’s 13% and Belgium’s 6%.
  4. Metrics were created that limited risk for investors. For example, the Newpin Social Benefit Bond funds separate programs for mothers and fathers, but as the fathers’ program had less evidence, it wasn’t included in the payment metric for investors. The fathers’ program was included in the payment metric for the charity providing the services.
  5. The media has been used to promote SIBs as an investment opportunity, with coverage of each investment opportunity including the national financial newspaper, the Australian Financial Review.

The eight SIBs – details and references

This information is provided to make it easier for researchers and other interested parties to access the range of information on Australian SIBs. It is all copied as faithfully as possible from original sources, but the original sources are still more reliable. The eight SIBs are listed in chronological order below, but are grouped by state below that. Clicking on the name of each SIB will take you to the information about it.

Aussie SIB map - map only.png

Chronological order Social Impact Bond (State) Status
1 Newpin Social Benefit Bond (NSW)

Families with children in care

Currently delivering services
2 Benevolent Society Social Benefit Bond (NSW)

Families with children in care

Currently delivering services

Reoffending and re-incarceration

Currently delivering services
4 Aspire (SA)


Currently delivering services
5 Resolve Social Benefit Bond (NSW)

Mental illness

Investment raised, yet to begin delivering services
6 Newpin Queensland Social Benefit Bond (QLD)

Families with children in care

Investment raised, yet to begin delivering services
7 Queensland Reoffending (QLD)

Reducing reoffending rates

Contracts signed, yet to raise investment.

Homelessness for young people

Contracts signed, yet to raise investment.

New South Wales

Newpin Social Benefit Bond

(Source: NSW Office of Social Impact Investment)

Location Expanding from 4 to 7 locations throughout NSW
Service start date July 2013
Duration 7 years
Social Issue Restoring children from out-of-home care to their families and supporting families to prevent children entering care
Target population 700 families; more than half of which have at least one child aged six or under in out-of-home care
Outcome metric The restoration of children from out-of-home care to their families. All family restorations are independently decided by the NSW Children’s Court.
Outcome evaluation method The outcomes are compared to a live control group (for the first three years the comparison was an actuarial estimate).
Intervention Parents attend Newpin centres at least two days a week over 18 months. In this time, they are supported to develop their parenting skills, attend therapeutic support groups and interact meaningfully with their children.
Service Provider Uniting
Outcome Funder Department of Family and Community Services NSW
Upfront capital commitment (by investors) $7m  (total expected Government payments $47m)
Investors 59 wholesale investors + 1 retail investor, includes NG Super, Christian Super, Uniting (service provider), The Benevolent Society (charity), Emma Tomkinson (retail investor)
Other roles Financial intermediary: Social Ventures Australia
Maximum loss and return for investors Minimum Interest Rate = 5% p.a. over the first three years.

Maximum Interest Rate = 15% p.a. over the full term.

Maximum loss is 50% of Principal at the maturity date.

Payment schedule and thresholds Interest payments made annually. Principal Repayment repaid on the Maturity Date if the Restoration Rate over the full term is greater than 55%.
Investor payment dates 30 June 2014 (calculation date. Actual payments made later that year)
Results so far Newpin’s overall restoration rate for the first three years is 61 per cent, compared to 25 per cent for similar families with at least one child under the age of six that were not part of the program. Based on this performance, investor returns were 12.2 per cent for the first three years.

Sources and references:

Newpin Factsheet (June 2017 – by NSW Office of Social Impact Investment)

Information Memorandum for prospective investors (April 2013 – by SVA)

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The Benevolent Society Social Benefit Bond

Location NSW
Service start date 2013
Duration 5 years
Social Issue Preventing children entering out-of-home care
Target population Up to 400 families who are expecting a child or have at least one child under six years of age (approximately 636 children), and who have been reported to Department of Family and Community Services as being at risk of significant harm. There are four annual cohorts, which will be used to calculate payments.
Outcome metrics Three key measures:

·         Out-of-home care entries

·         Helpline Reports from six months after entry to the service

·         Number of safety and risk assessments

A calculation is made using the three measures, and then adjusted for children that cannot be matched to the control and shortfall in referrals.

Outcome evaluation method Results are compared to a live control group and independently certified. Outcome measurements are taken throughout the investment and comparisons calculated annually.
Intervention Practical and therapeutic in-home support to at-risk families for up to 12 months, including 24/7 support during the first 12 weeks.
Service Provider The Benevolent Society
Outcome Funder Department of Family and Community Services NSW
Upfront capital commitment (by investors) $10m  (total cost of intervention $12.75m)
Investors Equity tranch: $2.5m from 17 investors

Principal protected tranch: $7.5m from 40 investors including NRMA Motoring & Services, Australian Ethical Investments, The Benevolent Society, Westpac Bank and Commonwealth Bank of Australia.

Other roles Financial intermediaries – Westpac Banking Corporation and the Commonwealth Bank of Australia
Maximum loss and return for investors Equity tranch: all capital at risk with maximum 30% return

Principal protected tranch: 100% capital guaranteed with maximum 10% return

Payment thresholds
Performance Class Performance Improvement Interest Return

(P tranch)

Interest Return

(E tranch)

Fail < 5% 0% 0%
Baseline >=5% <15% 5% 8%
Good 1 >=15% <20% 6% 11%
Good 2 >=20% <25% 7% 15%
Good 3 >=25% <35% 8% 20%
Good 4 >=35% <40% 9% 25%
Outperform >40% 10% 30%
Investor payment dates There is only one investor repayment – at the end (late 2018)
Results so far 2016 results showed that 21 per cent fewer children entered care compared to a control group. Investor returns will be calculated and paid after the bond ends. If returns were paid based on third year results, principal protected investors would receive a six per cent return and equity investors would receive a 10.5 per cent return

Sources and references:

The Benevolent Society Social Benefit Bond Factsheet

Benevolent Society 2016 Investor Report

Information memorandum for prospective investors, summarised in Presentation to investors

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This contract is not referred to as a Social Benefit Bond by the NSW Office of Social Investment, however it fits the definition I use, so I’m including it here.

Location Selected Sydney metropolitan areas
Service start date September 2016
Duration 5 years
Social Issue Parolee re-offending
Target population Up to 3,900 adult parolees with a medium to high risk of reoffending, released to supervision in selected Sydney metropolitan areas
Outcome metric Reduction in the re-incarceration rate of participating parolees in the 12 months after their release
Outcome evaluation method Participating parolees reoffending and re-incarceration will be compared to a randomly selected control group
Intervention The program provides participating parolees with enhanced support and referral services for up to 12 months following their release.
Service Provider Jointly delivered by the Australian Community Support Organisation (ACSO) and arbias
Outcome Funder Corrective Services NSW
Upfront capital commitment (by investors) Unknown
Investors Australian Community Support Organisation (ACSO) and NAB
Other roles Calculation of outcome metric: NSW Bureau of Crime Statistics and Research (BOCSAR)
Maximum loss and return for investors Unknown
Payment schedule and thresholds Unknown
Investor payment dates Unknown

NSW Office of Social Impact Investment OnTRACC Fact Sheet

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Resolve SBB

Location Western NSW and Nepean Blue Mountains
Service start date Expected October 2017
Duration 7.75 years
Social Issue Mental illness
Target population Approximately 530 mental health patients in Western NSW and Nepean Blue Mountains local health districts
Outcome metric Percentage reduction in National Weighted Activity Units (NWAU – an activity measure for determining total health related service consumption, which also accounts for the severity and duration of services consumed, including hospital admissions) incurred by the individuals in the program over their two-year measurement periods relative to those incurred by a control group
Outcome evaluation method Results will be compared to a live control group
Intervention A residential program for periodic crisis care, community outreach support and a 24/7 “warm line” offering after hours phone support to provide advice and support before a crisis situation arises.

Each individual will receive recovery-orientated support for up to two years lead by peer workers who have a lived experience of a mental health issue.

Service Provider Flourish Australia
Outcome Funder NSW Health
Upfront capital commitment (by investors) $7 m (total expected Government payments $21.7m; possible range is $9m to $23.9m)
Investors The 50 investors range from high net worth individuals and foundations, through to institutional investors such as NGS Super and Grosvenor Pirie Super.
Other roles Financial Intermediary – Social Ventures Australia
Maximum loss and return for investors Termination rights limit downside loss to approximately 40% of principal. Returns are 2% pa fixed interest payments over 4.75 years, then performance coupons based on the level of Resolve SBB Trust assets to a maximum of 11% per annum IRR over the 7.75 years.
Payment schedule and thresholds
Performance scenario Underperform Below target Target Above target Outperform
NWAU reduction 10% 17.5% 25% 32.5% 40%
IRR (pa) 4% 7.5% 10% 11%
Investor payment dates 31 March 2019 (final coupon 31 March 2025)

Sources and references:

Resolve SBB Information Memorandum (PDF, 1MB)

Resolve SBB Deed Poll and Purchase Deed (PDF, 1MB)

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South Australia

Aspire Social Impact Bond

Location Adelaide metro
Service start date 1 July 2017
Duration 7.75 year bond term.
Social Issue Homelessness
Target population Approximately 600 individuals will be referred to the Aspire Program from across Adelaide over a four year period. 400 of those referred are expected to meaningfully engage in the program. Referrals will be accepted from providers of homelessness services, participating prisons (up to 10% of referrals), participating hospitals (up to 10% of referrals) and Housing SA.
Outcome metric Use of health services (hospital bed days), justice services (convictions) and homelessness services (short term and emergency accommodation periods)
Outcome evaluation method Health, justice and homelessness service use compared to historical baseline
Intervention Based on the ‘housing first’ intervention model, with a focus on strengthening community engagement and employment participation. Participants will be provided stable accommodation, job readiness training, pathways to employment and life skills development. They will also have the long term support of a dedicated ‘Navigator’ to help them connect with wider support services and identify and achieve their aspirations.
Service Providers Hutt St Centre, an Adelaide based homelessness services specialist, in partnership with community housing providers including Housing Choices SA (formerly Common Ground Adelaide) and Unity Housing.
Outcome Funder Government of South Australia
Upfront capital commitment (by investors) $9m (total Government payments if target is met $17m; possible range is $6m to $21m)
Investors 65 investors including NGS Super, Future Super and HESTA, Coopers Brewery Foundation
Other roles Financial intermediary: Social Ventures Australia
Maximum loss and return for investors Returns are via 2% pa fixed interest payments over 4.75 years, then a performance coupon is paid that could take the IRR of the SBB to a maximum of 13% over 7.75 years. The maximum potential loss of Principal is approximately 50% due to termination rights.
Payment schedule and thresholds
Performance scenario Underperform Below target Target Above target Outperform
Hospital bed days reduction 5% 10% 15% 20% 25%
Convictions reduction 5% 10% 15% 20% 25%
Accommodation periods reduction 15% 40% 50% 60% 67%
IRR termination 4.5% 8.5% 12% 13%
Investor payment dates Payments calculated annually 31 December 2018 -2024


Aspire SIB Information Memorandum (PDF, 2MB)

Aspire SIB Deed Poll, Purchase Deed and Note Issue Supplement (PDF, 993KB)

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Information on Queensland SBBs is published by the Queensland Government here

Newpin Queensland SBB

Location Cairns and two other locations in Queensland
Service start date Beginning 2018
Duration 7.25 years
Social Issue The over-representation of Aboriginal and Torres Strait Islander children in out-of-home-care
Target population Approximately 200 primarily Aboriginal and Torres Strait Islander families who have at least one child aged under five and a half years old and is in OOHC
Outcome metric The number of children in the Intervention Group that have been, and continue to be, reunified with their parent(s) [from out of home care] 18 months after their referral to the Newpin Program, less the Counterfactual Reunifications
Outcome evaluation method Comparison against historical baseline
Intervention Parents attend Newpin centres at least two days a week over 18 months. In this time, they are supported to develop their parenting skills, attend therapeutic support groups and interact meaningfully with their children.
Service Provider UnitingCare Queensland
Outcome Funder Queensland Government
Upfront capital commitment (by investors) $6m (total expected Government payments $26.5m)
Investors 34 investors, including NGS Super, along with QIC and HESTA
Other roles Financial intermediary: Social Ventures Australia
Maximum loss and return for investors Returns are via 2% pa fixed interest payments over six years, with a performance interest payment in year 7 that could take the IRR of the SBB to a maximum of 12% over 7.25 years. The maximum potential loss of Principal is 12% during the first three years and 50% thereafter.
Payment schedule and thresholds
Performance scenario Underperform Below target Target Above target Outperform
Rate of reunification 21.5% 31.5% 41.5% 51.5% 61.5%
Incremental reunifications 30 87 139 188 234
IRR (pa) -7% 3.5% 7.5% 10.5% 12%
Principal returned 50% 100% 100% 100% 100%
Investor payment dates 30 September each year from 2018 to 2024


Newpin Qld SBB Information Memorandum (PDF, 2MB)

Newpin Qld SBB Deed Poll and Purchase Deed (PDF, 1MB)

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Youth Choices

The Queensland Government has signed a contract with Life Without Barriers for this SBB. Funds have not yet been raised.

Location Two locations – one in North Brisbane and the second in South Brisbane.
Service start date Expected start date late 2017
Social Issue Reducing offending rates for Young Queenslanders
Target population Up to 600 young people, 10-16 years old, who have been determined to have ‘high to very high’ risk of reoffending will be referred to the program by Youth Justice over five years.
Intervention Multi-Systemic-Therapy – will work with the family unit to deliver improved family functioning and parenting skills, higher rates of school participation and reduce substance abuse.
Service Provider Life Without Barriers
Outcome Funder Queensland Government
Other roles Financial intermediary: National Australia Bank (NAB)


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The Queensland Government has signed a contract with Churches of Christ in Queensland for this SBB. Funds have not yet been raised.

Location Two services – one in South East Queensland and the other in Townsville.
Service start date Expected late 2017
Social Issue Homelessness for young people
Target population Young people aged 15 to 25  who are exiting or have exited statutory care and are homeless or are at risk of homelessness
Service Provider Churches of Christ in Queensland
Outcome Funder Queensland Government
Other roles Intermediary (raising and managing investment, program design and negotiations): Social Outcomes, in conjunction with Westpac

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Two contsortia, led by Anglicare and Sacred Heart Mission, have been selected to jointly develop social impact bonds with the Victorian Government. Service contracts have not yet been signed.

  1. The Anglicare consortium, which includes VincentCare, proposes a mix of individualised case management, specialist support, and stable housing to improve outcomes for young people leaving out of home care.
  2. Sacred Heart Mission will provide rapid access to stable housing and intensive case management to support Victorians experiencing chronic homelessness and harmful alcohol and other drug use.

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I am more than happy to be corrected on any of the above – please email with changes that should be made, or or comment with differences of opinion or relevant information.

What if government doesn’t refer enough people into your social impact bond (SIB)?

One of the problems faced when developing a SIB is how people end up as part of the intervention cohort. If the process involves government or some other body referring participants to the service delivery organisation, how does this service delivery organisation manage the risk that not enough people will be referred, or that the wrong kind of people (i.e. those with little potential for change) will be referred?

Referral mechanisms that are used can be split into the following three categories:

  1. Eligible: eligibility criteria are defined and everyone who meets it is considered part of the SIB
  2. Self-selected: either the delivery organisation chooses participants or people choose to join
  3. Referred: government refers individuals into the program

All of these mechanisms involve some eligibility criteria that participants must meet to be included.

Examples of each mechanism are listed below.

Eligibility – everybody eligible is considered part of the intervention cohort and measured

Peterborough: All male prisoners exiting HMP Peterborough after serving less than 12 months sentence.

Other examples: New York City, New York State

One of the key benefits to government of this approach, is that the responsibility and incentive for convincing people to participate in the program lies with the service provider. It is also more suitable for a rigorous measurement approach where the intervention cohort is compared to another cohort, as the potential for bias in the selection process is reduced.

Self-selection – either the service delivery organisation chooses people to be part of their program or participants choose to join, usually with some eligibility criteria that must be met

DWP Innovation Fund: Service delivery organisations were asked to propose which young people they would work with and how they would attract them. “Your proposal must clearly demonstrate how you are identifying and working with the most disadvantaged and socially excluded young people, the vast majority of whom would otherwise not achieve educational and employment outcomes” (DWP, Round Two Specifications). Some programs asked schools or other organisations to refer students to them.

One of the key benefits of this approach is that the service delivery organisation is in control of how many participants are included in the program, so if they need more people they can do something about it themselves. They can also make sure that the participants have the type of needs that their program was designed for.

Referred – Government refers people it consider suitable for the program, usually using some eligibility or referral criteria

Australia The Benevolent Society: Referrals are made by the Department of Family and Community Services according to the processes and criteria set out in an operations manual.

Other examples: Essex County Council, Australia Newpin

This referral system is sometimes preferred by government, as it gives them control over who participates in the program, but it means that providers are exposed to the risk that not enough people are referred.

But how do we make sure enough participants are referred to a SIB?

Let’s look at two SIBs where this issue has been responded to.

Educating/marketing to government referrers: Essex County Council

The Essex County Council SIB relied on referrals from the council, however they weren’t getting enough of the right type. In order to fix this, the delivery organisation went in to educate and encourage council staff about the program and who they should refer to it.

“We discovered that Essex weren’t referring enough children who would most benefit from the intervention, due to a combination of things, including competing priorities of senior staff and referral staff not knowing the program existed, or who and how to refer. Solving this problem would not usually fall in the remit of a service provider, but our performance managers went into the council to do a marketing push and went right up to a senior level to change the way they were referring.  The board is also considering whether to add an additional ‘marketing’ function to the service, to ensure that the barriers to referral are continually being addressed proactively” (Andrew Levitt, of Bridges Ventures,

Incentives for government to refer (or penalties if they don’t): The Benevolent Society

The Australian Social Benefit Bond delivered by the Benevolent Society has a second part to its payment formula that corrects for a lack of referrals. The first part is related to the improvement that the program makes against its three outcome metrics: Out-of-home care entries; Safety and Risk Assessments; Helpline Reports. The second part is where the improvement is adjusted according to whether adequate referrals have been made and whether the children in the program can be compared against children not in the program. It’s called the ‘Performance percentage’.

While payments will not be made until 2018, we can use the 2014 preliminary results to understand how the metric works.

Measure Improvement Weighting
Out-of-home care entries 17% 66%
Safety and Risk Assessments (70%) 17%
Helpline Reports (3%) 17%
Improvement Percentage (1%)

In 2014, the program made a minus one percent improvement against its outcomes.

The second part of the payment metric combines the improvement percentage with two metrics that address the risk related to (1) the measurement and (2) the referral methods.

  1. The counterfactual for this program is a propensity-score-matched control group, so to manage the risk of children not being able to be matched, a fixed improvement of 15% is assigned to each unmatched child.
  2. The SIB has set a number of children the Department of Family and Children’s Services guarantees to refer. For each child under the guaranteed number, an improvement of 40% is assigned. You can see below that in the first year of the program, referrals from government were 21% below where they should be, which combined with the score for unmatched children, lifted the performance percentage from -1% to 8%. This is a huge incentive for the Department to make sure they are meeting their referral guarantee.
Measure Performance Weighting
Improvement Percentage (1%) 77%
Unmatched Children Percentage 15% (fixed) 2%
Guaranteed Referrals Shortfall Percentage 40% (fixed) 21%
Performance Percentage 8%

So the 2014 results carried a huge penalty for government falling short in referrals.

Interestingly enough, the 2015 results show the Guaranteed Referrals still falling short by 13%. This could be due to over-calculation of eligible families during the contract development, or it could indicate a continuing lack of referrals by government staff to the program. It will be interesting to watch how this mechanism works as we head towards payment in 2018.

Changing a Social Impact Bond (SIB) metric mid-flight

Social impact bonds are new, so involve a lot of learning on the job. This learning is less that one SIB ‘works’ and another SIB does not, but more about the iterative adjustments that allow for more effective services, more flexible procurement processes, more alignment of incentives in contracts. One aspect of SIBs that is new for many jurisdictions is long-term contracts. Long-term contracts have many benefits to those delivering and receiving services, but in order to respond to information that comes to light over this time, they must also allow for adjustment and termination.

As its second year draws to a close, investors in Australia’s first social impact bond, the Newpin Social Benefit Bond, have been asked to approve an amendment to its payment metrics, so that they more faithfully reflect success for the children and families it serves.

The reason for this is that the metric rewards investors when children in foster care are restored to their families by the court (“restorations”). When developing the metrics, the breakdown of restorations where children would return to foster care (“reversals”) was discussed, but failed to be written into the contracts. The intention of the metrics is to reward social outcomes with financial return, which means that while restorations should result in payments, reversals should not.

The Newpin Social Benefit Bond has two different payment metrics. One that determines payment from government to the delivery charity, UnitingCare, and a different one metric to determine payment from UnitingCare to Investors.

Newpin SBB payment metrics

The problem with each metric and the amendments proposed to rectify these problems are shown below. For original contracts and a more detailed summary of metrics see the bottom of this page.

What is the problem?

  • Metric 1 NSW Government => UnitingCare: a drafting error was made that did not deduct reversals in the current measurement period, only previous measurement periods. So the government does not make payments for reversals that occurred in the previous financial years, but does make payments for reversals in the most recent financial year.
  • Metric 2 UnitingCare => investors: UnitingCare makes payments based on the cumulative rate of restoration of children to their families. This includes restorations that have been reversed and thus does not faithfully reflect success for families.

In the second year of the SIB, several reversals occurred. So all parties wanted to ensure that these were not paid for in the same way as successful restorations. Government and UnitingCare agreed to amend their metric (Metric 1). An amendment to the investor metric (Metric 2) was also sought to limit payments for unsuccessful restorations. In order to change the metrics, all 60-odd investors had to agree to it. They were also given the option of selling their investment. Using the results to the end of May 2015, the amended metric would return 7.5% interest to investors for the year, while the original contract would return 13.5% interest for the year. If investors did not agree to the amendment UnitingCare would have to pay the inflated interest and continue the service with an imbalance between payments from government and the interest paid to investors. This may have led to UnitingCare exercising their termination rights at the end of year 3. A 10% cap on reversals was proposed in order to limit the ongoing risk to investors and increase the likelihood that they would agree to the amendment.

The proposed amendment

  • Metric 1 NSW Government => UnitingCare: change to not paying for reversals that occur within 12 months of a restoration.
  • Metric 2 UnitingCare => investors: change to not paying for reversals that occur within 12 months of a restoration, but only up to a cap of 10% of restorations. If more than 10% of restorations are reversed, then reversals over this cap are treated as successful restorations for the purpose of calculating the interest paid by UnitingCare to investors.

The amendment still leaves us with an imperfect metric.

  1. If the proportion of reversals is above 10%, UnitingCare will make interest payments to investors (based on the cumulative restoration rate) which will include restorations that have been reversed, even though this does not reflect success for the families involved.
  2. If the proportion of reversals is above 10%, UnitingCare will make a success payment to investors that includes reversals over the cap, but for these reversals, UnitingCare will not receive government outcome payments.
  3. There were no reversals in the first year of the SBB and 28 children were restored from the mothers’ centres. In the second year to May 2015 (not a full year), 20 children were restored from the mothers’ centres, and 7 of these restorations were reversed, some being reversals of restorations from the previous year. The reversals at the mothers’ centres represent 15% of cumulative restorations. Therefore reversals for the second year are above 10% of restorations. If the amendment is agreed and applied retrospectively to year two, UnitingCare will pay investors for restorations that were not maintained, and for which they themselves receive no payments.

What can we learn?

There are several key lessons I draw from this experience. Note that every other stakeholder may have a completely different list!

  1. It’s important to be able to learn as you go and respond to new information, allowing for amendments, dispute and termination on fair terms.
  2. Having different metrics determining payments to the delivery agency and payments from the delivery agency means that there is some misalignment of incentives.
  3. The Newpin SBB has a mix of ‘impact-first’ and ‘finance-first’ investors. The 10% cap was a way of striking a balance between them. While the fiduciary duties of those investing through structures such as self-managed super funds and Private Ancillary Funds do not conflict with them making social/impact investments, some perceived agreeing to a lower rate of return as conflicting with their fiduciary duties as trustees.
  4. When contracting for outcomes, enormous attention has to be paid to thinking through all potential scenarios, however unlikely, to ensure the intended social outcomes are reflected in the legal terms.
  5. It is very difficult to reflect the journey of someone through social service systems with a binary measure. The definitions and metrics deem the program as either successful or unsuccessful for children and their families, with no ability to accommodate degrees of success or episodes of care over time.

Update on results to July 2015 (2.25 years of service delivery and second payment to investors)

The amendment was passed by all investors. Without the amendment, the Restoration Rate would have been calculated at 68% and the Interest Rate at 15.08%. With the amendment, the Restoration Rate was calculated at 62% and the Interest Rate paid to investors was 8.92%. If there had been no cap, and all reversals were considered unsuccessful outcomes, the Restoration Rate would have been calculated at 58% and the Interest Rate would have been 5.6%. So the investors did agree to forgo much of the interest that was due to them under the original agreement, but gained over 3% more than if all reversals were treated as unsuccessful outcomes. The difference in the investor interest was paid by the charity UnitingCare. The amount they were paid by NSW Government paid was not affected by this.

Newpin SBB metric - year 2


Metrics summary

  • Metric 1 NSW Government => UnitingCare: for Cohort 1 Outcome Payment = (the total number of restorations for all Mothers’ Centres and Fathers’ Centres – the counterfactual restorations) x the amount in payments look-up table. The counterfactual restorations are set at 25% for the first three years and then by a live control group. There are also payments that do not depend on outcomes and outcome payments for other cohorts.
  • Metric 2 UnitingCare => investors: Interest Rate = 3% + [0.9 x number of restorations for all Mothers’ Centres/(number of referrals to Mothers’ Centres– 55%)] subject to:
    • if the Restoration Rate is below 55%, the Interest Rate is nil; except
    • a minimum of 5% is applied over the first three years; and
    • a maximum of 15%.

*Note that investor payments relate only to Mothers’ Centres as they were considered lower risk at the time the metric was developed. The discussion above focuses on Mothers’ Centres only.

Disclaimer: Emma is a retail investor in the Newpin Social Benefit Bond. She bought her parcel from a wholesale investor when the restrictions around types of investors expired. She firmly believes that Newpin does wonderful and important work with families.  

Developing a counterfactual for a social impact bond (SIB)

The following was taken from a presentation by Sally Cowling, Director of Research, Innovation and Advocacy for UnitingCare Children, Young People and Families. The presentation was to the Social Impact Measurement Network of Australia (SIMNA) New South Wales chapter on March 11 2015. Sally was discussing the measurement aspects of the Newpin Social Benefit Bond, which is referred to as a social impact bond in this article for an international audience.

The social impact bond (called Social Benefit Bond in New South WaleSally Cowlings) was something very new for us. The Newpin (New Parent and Infant Network) program had been running for a decade supported by our own investment funding, and our staff were deeply committed to it. When our late CEO, Jane Woodruff, appointed me to our SIB team she said my role was to ’make sure this fancy financial thing doesn’t bugger Newpin up’.

One of the important steps in developing a social impact bond is to develop a counterfactual. This estimates what would have happened to the families and children involved in Newpin without the program, the ‘business as usual’ scenario. This was the hardest part of the SIB. The Newpin program works with families to become strong enough for their children to be restored to them from care. But the administrative data didn’t enable us to compare groups of potential Newpin families based on risk profiles to determine a probability of restoration to their families for children in care. We needed to do this to estimate the difference the program could make for families, and to assess the extent to which Newpin would realise government savings.

Experimenting with randomised control trials

NSW Family and Community Services (FACS) were keen to randomly allocate families to Newpin as an efficient means to compare family restoration and preservation outcomes for those who were in our program and those who weren’t. A randomised control trial is generally considered the ‘gold standard’ in the measurement of effect, so that’s where we started.

Child's drawing of a happy kidOne of my key lessons from my Newpin practice colleagues was the importance of their relationships and conversations with government child protection (FACS) staff when determining which families were ready for Newpin and had a genuine probability (much lower than 100%) of restoration. When random allocations were first flagged I thought ‘this will bugger stuff up’.

To the credit of FACS they were willing to run an experiment involving local Newpin Coordinators and their colleagues in child protection services. We created some basic Newpin eligibility criteria and FACS ran a list from their administrative data and randomly selected 40 families (all of whom were de-identified) for both sets of practitioners to consider. A key part of the experiment was for the FACS officer with access to the richer data in case files to add notes. Through these notes and conversations it was quickly clear that a lot of mothers and fathers on the list weren’t ready for Newpin because:

  • One was living in south America
  • A couple had moved interstate
  • One was in prison
  • One had subsequent children who had been placed into care
  • One was co-resident with a violent and abusive partner – a circumstance that needed to be addressed before they could commence Newpin

From memory, somewhere between 15 and 20 percent of our automated would-be-referrals would have been a good fit for the program. It was enlightening to be one of the non-practitioners in the room listening to specialists exchange informed, thoughtful views about who Newpin could have a serious chance at working for. This experiment was a ‘light bulb moment’ for all of us. For both the government and our SIB teams, randomisation was off the table. Not only was the data not fit for that purpose, we all recognised the importance of maintaining professional relationships.

In hindsight, I think the ‘experiment’ was also important to building the trust of our Newpin staff in our negotiating team. They saw an economist and accountant listening to their views and engaging in a process of testing. They saw that we weren’t prepared to trade off the fidelity and integrity of the NewpiChild's drawing of happinessn program to ‘get’ a SIB and that we were thinking ethically through all aspects of the program. We were a team and all members knew where they did and didn’t have expertise.

Ultimately Newpin is about relationships. Not just the relationships between our staff and the families they work with, but the relationship between our staff and government child protection workers.

But we still had the ‘counterfactual problem’! The joint development phase of the SIB – in which we had access to unpublished and de-identified government data under strict confidentiality provisions – convinced me that we didn’t have the administrative data needed to come up with what I had come to call the ‘frigging counterfactual’ (in my head the adjective was a bit sharper!). FACS suggested I come up with a way to ‘solve’ the problem and they would do their best to get me good proxy data. As the deadline was closing in, I remember a teary, pathetic midnight moment willing that US-style admin data had found a home in Australia.

Using historical data from case files

Eventually you have to stop moping and start working. I decided to go back to the last three years of case files for the Newpin program. Foster care research is clear that the best predictor of whether a child in the care system would be restored to their family was duration in care. We profiled all the children we had worked with, their duration in care prior to entry to Newpin and intervention length. FACS provided restoration and reversal rates in a matrix structure and matching allowed us to estimate that if we worked with the same group of families (that is, the same duration of care profiles) under the SIB that we had in the previous 3 years, then the counterfactual (the percentage of children who would be restored without a Newpin intervention) would be 25%.

As we negotiated the Newpin Social Benefit Bond contract with the NSW Government we did need to acknowledge that a SIB issue had never been put to the Australian investment market and we needed to provide some protection for investors. We negotiated a fixed counterfactual of 25% for the first three years of the SIB. That means that the Newpin social impact bond is valued and paid on the restoration rate we can achieve over 25%. Thus far, our guesses have been remarkably accurate. To the government’s immense credit, they are building a live control group that will act as the counterfactual after the first three years. This is very resource intensive but the government was determined to make the pilot process as robust as possible

In terms of practice culture, I can’t emphasise enough the importance of thinking ethically. We had to keep asking ourselves, ‘Does this financial structure create perverse incentives for our practice?’ The matched control group and tightly defined eligibility criteria remove incentives for ‘cherry picking’ (choosing easier cases). The restoration decisions that are central to the effectiveness of the program are made independently by the NSW Children’s Court and we need to be confident that children can remain safely at home. If a restoration breaks down within 12 months our performance payment for that result is returned to the government. For all of us involved in the Newpin Social Benefit Bond project behaving thoughtfully, ethically and protecting the integrity of the Newpin program has been our raison d’etre. That under the bond, the program is achieving better results for a much higher risk of group of families and spawning practice innovation is a source of joy which is true to our social justice ethos.

Breakdown of social impact bond investors in Australia

There are two social impact bonds in Australia that have raised investment and are delivering services. They have been called “Social Benefit Bonds (SBBs)” by the New South Wales Government, the state government that initiated them. They are the Newpin SBB and the Benevolent Society SBB and both of them work to strengthen families to ultimately reduce the need for children to be placed in care outside their homes. Investment for both deals was open to wholesale investors upon application. One parcel of investment in the Newpin SBB was transferred to a retail investor in August 2014, so is not shown on the chart. Also interesting to note is that the Benevolent Society, the charity delivering services for one SBB, has invested in the Newpin SBB, as well as in their own. A breakdown of investor types for each SBB is below.

Newpin investor breakdown(Source: Presentation by Ian Learmonth, 2013, p.14)

Bensoc investor breakdown(Source: KPMG Evaluation of the Joint Development Phase of the NSW Social Benefit Bonds Trial, 2014, p.30)

A second social impact bond for NSW Australia

Benevolent Society Social Benefit Bond(Source: The Benevolent Society. “First Charity” refers to the Benevolent Society being the first charity established in Australia.)

On June 14 2013 it was announced that the terms of a second social benefit bond have been agreed in New South Wales, Australia. It will provide services to strengthen 400 families and reduce the need for out-of-home care over five years, beginning October 2013. Press releases were issued by the charity service provider, The Benevolent Society and one of their partners in the SIB, Westpac Institutional Bank. The other partner was a second bank, the Commonwealth Bank of Australia and the involvement in this deal of two of the four large Australian banks has captured media attention. The banks were involved in the construction of the bond as pro bono advisors and are also investors. The Benevolent Society is also investing in the Social Benefit Bond, a move promote confidence in their ability to deliver outcomes. Other investors include institutional investors NRMA Motoring & Services and Australian Ethical Investments.

Investors will provide working capital for the services up-front and the NSW Government will cover all repayments once outcomes have been produced and measured. The social benefit bond also involves financial services firm Perpetual as trustee, a move expected to give investors further confidence in the deal. The role of the intermediary as played by Social Finance in Peterborough and MDRC in New York is not played by any organisation in this arrangement in a comparable way. 

Benevolent Society SBB tiers

The offering closed on Friday October 4th having raised $10m. 40 investors make up the low-risk tier and 17 investors make up the high-risk tier. In contrast to expectations that social impact bond risk needs to be reduced to attract investors, the high-risk tier proved more attractive and sold out much faster.

Once again, we see the NSW Government offering a guarantee, which means that the Government will pay even if the service does not produce the desired outcomes for recipients. In the previous NSW social benefit bond this guarantee was for between 50% and 75% of investor capital. This time it’s 100% of investor capital guaranteed, but only for the low-risk tier of investments, worth $7.5m or 75% of total investment. This may be an investment by the Government in establishing a market and track record for social impact bonds, rather than a model we can expect to see replicated in future years. The $7.5m of the bond with protected capital will also accrue variable returns up to 10%, dependent on outcomes. An additional $2.5m high-risk tier of investment will involve capital at risk, but will offer outcome-dependent returns up to 30%.

Media Coverage

Date Author Publisher Title
14/06/2013 Benevolent Society First charity issues Social Benefit Bond with Westpac and CBA
14/06/2013 Bela Moore Super Review Westpac Institutional and Commonwealth team up to launch social benefit bond
14/06/2013 James Fernyhough Financial Standard Big banks move into SBB space
14/06/2013 Australian Financial Review NSW strikes deal for $10m social bond
14/06/2013 Westpac First of its kind Social Benefit Bond supports efforts to keep families together – paves the way for socially responsible investors
15/06/2013 Clancy Yeates The Age / Brisbane Times Lenders back bond to keep children out of foster care
18/06/2013 Pro Bono Charity Issues Bank-Backed Social Benefit Bond
19/06/2013 Rick Morton The Australian Banks pitch in for $10m bond
4/10/2013 Rachel Alembakis The Sustainability Report Westpac, CBA raise $10 million for Benevolent Society SBB
5/10/2013 Sally Rose The Australian Financial Review NRMA and Australian Ethical buy Benevolent Society bond

This is the second of three social benefit bonds that are the product of a request for proposal issued by the NSW Government in September 2011 and awarded March 2012. The first was the Newpin social benefit bond announced in March and the final bond to reduce adult reoffending is still under development by the Government and Mission Australia, a charity service provider.

(Updated 8 October 2013.)

NSW Newpin social benefit bond – returns to investors


(Social Ventures Australia: Newpin Social Benefit Bond)

The NSW social benefit bond (social impact bond) for UnitingCare Burnside’s Newpin programme is attracting interest from a range of investors, including NGS Super – the first time we’ve seen a pension/superannuation fund sign up to a social impact bond. The Newpin programme is for families with children aged 0-5 and results are measured on the proportion of children in out-of-home care (which includes foster care, institutional care and placement with extended family) that are returned to their families by the courts. This is called the restoration rate.

Eureka Report’s A high-yield bond with social benefits recently revealed the social and financial returns over the seven year social benefit bond as follows:

Restoration rate (r) Return to investor (IRR)
≥ 70% 15%
65% ≤ r < 70% 12%
60% ≤ r < 65% 7.5%
55% ≤ r < 60% 3%
•minimum 5% yield over first three years
•no minimum yield after three years
•75% of capital returned if bond redeemed at four years
•50% capital returned if redeemed after four years

The Newpin restoration rates were 74.5% last year. Their approach to this social benefit bond, to measure their results for a similar cohort for the year prior to the bond, gives social investors information with which to judge the social and financial risk of the investors. Providing this information attracts investors beyond the die-hard philanthropists who have backed the programme from the start.

Funds were raised from 59 investors by Social Ventures Australia (SVA) with a minimum investment of AU$50,000. The SIB was oversubscribed. Below is a breakdown of investment by investor categories as presented by Ian Learmonth, Executive Director, Social Ventures Australia at the 2013 Social Finance Forum in Sydney/Australia.

NewPin SIB investors