Social Benefit Bonds

A second social impact bond for NSW Australia

Emma Tomkinson Australian Social Benefit Bonds, Social Impact Bonds , , , ,

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.)

Making the economic case to government

Image Emma Tomkinson Evidence-based policy, Social Impact Bonds , ,

CBA

Public agencies commissioning social impact bonds or other payment by results programmes want to see some kind of cost benefit analysis. But they might not always be so willing to provide the information an external organisation needs accurately estimate the benefit side. Different commissioners also have different requirements for cashable savings – for some it’s a key driver and for others it’s not a consideration.

I suggest that collecting benefits into the following five categories makes the information for the commissioner much clearer and, for UK commissioners, also explicitly addresses the requirements of the Social Value Act. All estimated amounts should be itemised and if an external applicant is unsure of the savings or benefits to public service agencies, then they should present a best estimate that prompts the commissioner to provide a more accurate figure. The Global Value Exchange is a database of proxy values that will be helpful for this.

Estimated amount
Cashable savings to commissioner(s)
Cashable savings to other public agencies
Non-cashable benefits / efficiency savings to commissioner(s)
Non-cashable benefits / efficiency savings to other public agencies
Savings/benefit to other stakeholders (social value)
Total economic benefit  

NSW Newpin social benefit bond – returns to investors

Emma Tomkinson Australian Social Benefit Bonds, Social Impact Bonds, Social Impact Measurement , , ,

Image

(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%
<55%
•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

NPC on payment by results and unneccessary complexity in charity contracts

Emma Tomkinson Across the sector, Social Impact Bonds , , , ,

Two fantastic new blog posts – I feel a bit like an NPC groupie, but I can’t help it when they produce such great work!

David Pritchard’s post is about the sector response to the Ministry of Justice payment-by-results proposals with a link to the report out of their workshop. The report lays out the stakeholder perspectives and the ‘key principles’ really nicely – clear and concise. Most of the issues are similar to what we’ve come across in Social Benefit Bond developments, but they organise it well and it’s always good to get perspective on the same issues being from elsewhere.

Iona Joy posts on the complexity of contracts and how developing tendering departments may not be something we want charities to do! She compares her experience with long, arduous contracts as a banker to the simpler ones of venture capital.

How do you know when outcome change can be attributed to your intervention?

Emma Tomkinson Evidence-based policy, Social Impact Measurement , , , , , ,

It was exciting to read the new working paper Addressing attribution of cause and effect in small n impact evaluations: towards an integrated framework by Howard White and Daniel Phillips. While it would be ideal that all the interventions we design would have the number of participants (n) and impact that would give us a statistically significant result at a high level of confidence, there are many reasons that this doesn’t happen. For payment-by-results contracts, in particular social impact bonds, attributing an impact to an intervention is a pre-requisite for the transfer of public funds. Also, funders the world over are attempting to identify the impact they are making across their portfolios, to increase the effectiveness of their investments. White and Phillips produce a fantastic summary of methods and examples that seek to attribute change to a cause. While their framework of small n methods is useful, it’s their up-to-date literature review that I find most useful.

The paper is published by 3ie: International Initiative for Impact Evaluation. 3ie have developed a database of policy briefs, impact evaluations and systematic reviews. They’re governed and staffed by a trans-global team, and while focussed on international development, their evaluation work is certainly relevant for interventions that alleviate disadvantage at a local or national level.

How do we get super funds involved in social investment?

Emma Tomkinson Social Impact Bonds, Social Investment & Finance , , ,

In Australia, superannuation funds are large and growing, so they’re the ideal social investors of the future. But super funds are also highly regulated and risk averse. And rightly so – we don’t want fund managers taking huge risks with our super! So there are two options. Firstly, we can lower the risk of social investment products to suit the requirements of funds. Secondly, most superannuation funds offer their clients a choice of options with different risk and return profiles. There’s an opportunity here to allow clients to chose to invest a portion of their super in social investment options, although we may not quite be there yet…

Phillipa Yelland’s article in today’s Investor Daily, Jury still out on Social Benefit Bonds, questions whether Social Benefit Bonds are good investments, interviewing Nick Ryder from NAB and Peter Murphy from Christian Super. Ryder neatly summarises the SBB concept and notes that we’re looking at a class of investment that do “not necessarily require people to choose between being a philanthropist or an investor”.Image

Murphy’s reservations have to do with the SBB’s complexity, the difficulty of understanding the metrics and using Social Return on Investment (SROI) figures. These reservations reflect where the SBB scene is at in Australia right now: we have three SBBs under development in New South Wales, none in the rest of the country, and none operational. We can’t fully understand the risk to investors until the terms, structure and the metrics of the SBBs under development have been decided on. The use of SROI is a separate issue. While it will be useful and meaningful to know the full social return of the SBB investments, returns to investors and Governments are unlikely to be calculated using this method. Investor return depends on outcome change, measured in a way that is closely related to costs Government is able to avoid. SROI itemises outcome change for all stakeholders and gives each of these a value. The basis of an SBB is limited the value of the outcome change for one stakeholder – the Government body funding it.

Will we see more randomised controlled trials in social program evaluation?

Emma Tomkinson Evidence-based policy, Social Impact Bonds, Social Impact Measurement , , , , ,

Randomised controlled trials are the preferred measurement method for the NSW social benefit bond (social impact bond) trials. The Coalition for Evidence-Based Policy published an overview and demonstration of rigorous-but-low-cost program evaluations in March 2012. The publication highlights the use of randomized controlled trials (RCTs) with administrative data systems, providing a number of examples from existing studies. RCTs are widely considered best practice with respect to program evaluation.

Omidyar Network to fund social impact bonds globally

Link Emma Tomkinson Social Impact Bonds, Social Investment & Finance , ,

Omidyar Network to fund social impact bonds globally

Omidyar Network announces grants to Social Finance UK and US, but the following exerpt from this article seems to suggest some of the money is destined for Australian social impact bonds!

Omidyar Network’s grants will support the expansion of social impact bonds in the United States, Ireland, Scotland, Australia, Canada and Israel, as well as in the international development sector.