Bond issues

Big news in the world of social investment with the announcement yesterday of a £11.25 million investment of Big Lottery funds in Social Impact Bonds. The Social Impact Bond (SIB), launched in March by social investment organisation, Social Finance, is a new kind of financial instrument whereby investors in the Bond receive a share of a the long-term savings made by the government as a result of the work funded by their investment.

The first ever SIB will fund a pilot project at Peterborough Prison where social sector organisations including Ormiston Trust, YMCA and St Giles Trust will provide intensive support to 3000 short-term prisoners to help them resettle into the community thereby reducing re-offending rates.

The rational is that keeping people in prison very expensive (it costs an average of £50,000 a year) and most (60%) of short term prisoners go on to re-offend in the year after their release. If the SIB funds work that reduces re-offending and saves the government lots of money over a six-year period, the investors should be entitled to a return on their investment which reflects the money that they’ve saved through their intervention.

£6.25 million of Big Lottery’s total SIB investment will go towards funding the Peterborough project with other investors in the first SIB including a mini-Who’s Who of top charitable trusts: Barrow Cadbury Charitable Trust, Friends Provident Foundation, The Henry Smith Charity, Johansson Family Foundation, LankellyChase Foundation, The Monument Trust, Panahpur Charitable Trust, Paul Hamlyn Foundation and the Tudor Trust.

This stellar line-up clearly reflects a high level of excitement in the grant-funding sector about the potential for SIBs, along with a credible desire from these trusts to put some cash into testing a new model. That’s a positive thing in itself, what’s currently less clear is the SIB’s potential to bring in new money from outside the current social investment sector. The launch press release quotes Rob Owen, Chief Executive of St Giles Trust explaining that:

“The Social Impact Bond represents the start of a funding revolution for organisations that specialise in preventative work. By unlocking future savings and capturing their value, the SiB allows access to capital from a wide range of new investors. This means that charities, such as St Giles Trust, can deliver their life changing services over a larger scale, with greater impact.”

The difficulty with this statement is that the investors in the first SIB aren’t ‘a wide range of new investors’, they’re an impressive list of trusts who already give out grants to pay for positive social outcomes who are using the SIB instrument to provide money in a slightly different way.

Is this because no investors without an existing grant-giving remit were asked to invest in the pilot or because they were asked but weren’t interested?

Either way, that leaves two big questions which the Peterborough pilot and further Big Lottery funded work will need to answer. The first is whether the SIB model works in terms of delivering money-saving social incomes – given the the amount of cashing going into one project, we’ve got to assume that the one project concerned is a reasonably decent bet in those terms – and the second is whether, if it does work and the Peterborough investors get a decent return, that will be enough encourage other investors (banks and wealthy individuals) to invest in future SIBs.

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4 Comments

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4 responses to “Bond issues

  1. It’s a good starting point, but in my view will only become a truly replicable model when local people can see the merit (and financial return) of investing in their own local schemes.

    Peterborough needs to be so successful it inspires other communities to do it for themselves – without outside ‘investment’.

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  2. beanbagsandbullsh1t

    I agree that local people investing in things is desirable but I’m not sure it’s practical to set-up new ways for local people to invest on this scale (£5million plus).

    There’s already a mechanism for people to fund stuff in their local area on that scale with a structure in place for collecting the money: the council.

    There’s certainly good arguments for councils to have more flexibility to raise money and for people to have more say over what they spend it on.

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  3. Well, it’s a pilot, so seems a bit harsh to judge it for lack of attracting new investors just yet…though I get the point.

    I think the bigger challenge may lie in ensuring the “less-easily-quantifiable-but-still-preventative” work can partake / participate in this type of funding + investment. Not just the easily monetisable outcomes.

    And that takes us back to measurement + metrics…

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  4. beanbagsandbullsh1t

    I agree. I’m not saying the pilot’s failed by not attracting outside investors but I do think that whether or SIBs can ultimately do that is the big question – otherwise it’s just a different way of using bits of the existing social pot.

    Agree that your big challenge is a big challenge. My instinct is large scale SIBs won’t be a good way of funding less easily quantifiable work but – if it becomes a widely used approach to funding – there will need to be an understanding of the work of projects and organisation whose work provides the building blocks for more easily quantifiable change.

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