Tag Archives: impact investment

12 SIBs of Christmas – The 1st Annual World Leading Social Impact Bond Quiz

Social Impact Bonds are a world leading financial instrument launched here in the UK in 2010. Since then we have continued to lead the world in launching them.

Earlier this year, then Cabinet Office minister, Rob Wilson noted that: “Social impact bonds are barely mentioned in the media today” before explaining: “In a few years time they will be the most talked about funding mechanism for government social projects. I will be talking about them a lot.

This is inspiring stuff but as social entrepreneurs we are often reminded of Gandhi’s tip that we should ‘be the change we want to see the world’. There is a small but genuine danger that, for all his gravitas, Rob Wilson may not be able to bring about this change on his own. The 1st Annual World Leading Social Impact Bond Quiz is my small contribution towards our collective impactful effort.

The answers will posted on here sometime next week. If you want to email your answers to me – david (at) socialspider (dot) com – I will compare them to a historical set of answers to a different quiz and decide whether I think you’ve won.

Existential question:

1. Social impact bonds all involve some form of payment by results contract – which (one or more) of the following other characteristics also applies to all social impact bonds launched across the globe before June 2016:

(a) Use of a Special Purpose Vehicle

(b) At least partially financed by socially motivated outside investment

(c) Investors have capital at risk

(d) Described as “A social impact bond”

(e) Presence of a counterfactual measure

(f) Service delivered by a charity, social enterprise or other non-profit

Leading the world:

2. What percentage of all social impact bonds in the whole world (as of June 2016) have been partially commissioned by the UK’s former Secretary of State for Work & Pensions, Iain Duncan Smith: 

(a) 23%

(b) 5%

(c) 12%

(d) 7%

3. Featured on the rate card for a UK social impact bond programme: “Improved attitude towards school – £700” is a proxy for which social outcome:

(a) Increased educational attainment

(b) Improved employability

(c) Reduced risk of committing crime

(d) The success of the UK social investment market

4. Launched in 2014, the Fair Chance Fund was a £15 million scheme to fund social impact bonds to tackle youth homelessness. What nickname was the fund given by investors and charities who were interested in applying but did not want to use the UK government’s preferred special purpose vehicle-based social impact bond model?

(a) Negligible Chance Fund

(b) Reasonable Chance Fund

(c) Cat In Hell’s Chance Fund  

(d) Fat Chance Fund

Saving the world:

5. In 2014, New York Times columnist, Nicholas Kristof appeared to suggest that a major international emergency could be tackled using by social impact bonds. Was it:  

(a) Russia’s action in Crimea

(b) the ebola outbreak

(c) global emissions of CO2

(d) the Greek government debt crisis

6. (Based on publically available data) which of these activities has not yet been the focus of a social impact bond or equivalent financial instrument – or an initiative to create one:

(a) saving the rhino

(b) reducing costs of road trauma

(c) tackling noise pollution

(d) teaching coding to primary school children

(e) improving building & fire safety in garment factories

Guess the investor:

Based on these innovative visual clues, identify the investors in social impact bonds in either the UK or the US:

7.

investor1

8. investor2

9.

investor3

Talking about them a lot:

10.  Which US Senator, talking about social impact bonds in a 2015 congressional hearing, exclaimed: “I don’t get this at all… I think this is an admission that government isn’t doing what it’s supposed to do. This strikes me as a fancy way of contracting out”:

(a) Joni Ernst

(b) Michael Bennett

(c) Angus King

(d) Ben Sasse

11.  Which UK civil society leader, speaking to a House of Lords committee in 2016, claimed: “The challenge has been the hyperbole around social impact bonds, which have got a disproportionate amount of resources… The government has developed this totem, the social impact bond, and is dedicated to achieving success with it.”

(a)Big Society Capital boss, Cliff Prior

(b) Social Enterprise UK CEO, Peter Holbrook

(c) Esmee Fairbairn Foundation CEO, Caroline Mason

(d) NCVO Chief Executive, Sir Stuart Etherington

12. In March 2015, which then UK cabinet minister hailed “the first trillion” of potential global impact investment:

(a) Nick Clegg

(b) Chris Grayling

(c) Theresa May

(d) Iain Duncan Smith

Merry Christmas and here’s to another year of talking a lot about social impact bonds.

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After the Gold Rush – The Report of the Alternative Commission on Social Investment

Some readers may have noticed that there hasn’t been a blog post here for a while. That’s not because there hasn’t been anything going on in UK social enterprise, it’s because I’ve been working on a project called The Alternative Commission on Social Investment. The press release below explains what it’s all about.

Our report is out now: the full version is here and there’s a shorter version here.

It would be great to hear what you think – either via email or below.

Normal blogging service will be resumed shortly.

NEWS RELEASE – FOR RELEASE AT MIDNIGHT THURSDAY 26th MARCH 2015

Commission proposes more open, social and responsive alternatives to rescue social investment from hype and hubris

In a report After the Gold Rush published today, Friday 27th March, the Alternative Commission on Social Investment called for less hype, greater transparency from investors, changes to Big Society Capital, and a more principled approach to social investment which puts charities and social enterprises at its heart.

The Commission explored, through a series of roundtables, interviews and research, the access to finance needs of social sector organisations and whether social investment, as currently conceived, can meet that need. The report proposes 50 ways to make social investment more successful and more social.

Through its work, the Commission sought to be more inclusive, more diverse and less London-focused than much of the social investment industry. The work of the Commission Team was guided by 14 Commissioners, all of whom have some interest and knowledge of social investment but who offer diverse experiences and perspectives.

  • Commission Secretariat and Managing Director of Social Spider CIC, David Floyd said “We often hear from Ministers, champions of social investment and the G8 that the UK is a world leader in social investment. Yet for charities and social entrepreneurs here in the UK, it doesn’t feel like that. The Alternative Commission on Social Investment was set up to ask why and to make some practical suggestions as to how things could be improved.”
  • Caroline Mason, Chief Executive of Esmée Fairbairn Foundation said “I welcome the publication of this timely and revealing report. Social investment is a wonderful tool but to enable social change we need to improve and develop on its execution. If social investment is to help charities and social enterprises improve the quality of people’s lives across the UK, then their voices need to be central in policy, market and product development.”
  • Professor Alex Nicholls, one of the Commissioners and Professor of Social Entrepreneurship at the Saïd Business School, Oxford University said “Since the financial crisis, we have seen increasing interest in how capital might be harnessed for social good. But the danger here is that we simply recreate models from mainstream financial markets and expect them to work in the social sector, while at the same time letting social values succumb to the power of capital. Instead, we need fairer, more open and inclusive investment models that can help tackle inequality.”

Recommendations

The Commission’s 10 key recommendations are (see report for full wording):

  1. Social investors, including Big Society Capital to go much further in publishing information about the investments they make.
  2. Social investors to be clear about how social aspects are weighed up in their investment approach.
  3. A reconsideration of the role of Big Society Capital, prioritising its impact over its own existence.
  4. Unravelling the mix between ‘the people’s’ Unclaimed Assets and money invested by the Merlin banks to allow Big Society Capital to better meet demand.
  5. Politicians and advocates of social investment to minimise social investment hype.
  6. Government policy to move away from looking to grow the relatively tiny “social investment market” for its own sake and focus instead more on the needs of charities and social enterprises
  7. The development of a set of defining principles for truly social investments
  8. Social investors’ approaches, staff and locations to better reflect and understand the market they are seeking to serve.
  9. A Compare the Market or Trip Advisor type tool which enables charities and social enterprises to rate their experiences of social investors.
  10. Large charities and social enterprises to invest in other social sector organisations through peer-to peer models.

Ends

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The squeezed middle

Social investment finance intermediaries, often known by the acronym, SIFIs, don’t generally enjoy a positive reputation among UK charities and social enterprises. As with MPs, many of us like and respect SIFIs and their employees individually but the emerging industry is not popular.

That’s mainly because, since social investment hit us (in a big way) in 2012, there’s at least been a perception that the government (in particular) has put loads of money into subsidising the process of and support for social investment, while not spending enough making social investment affordable or useful for charities and social enterprises.

As someone who talks to and works with lots of people in the intermediary business, I’m yet to meet one I’ve disliked or felt was in it for the money but genuine intentions are not the same thing as delivering value.

Never one to play to the gallery, Clearly So boss, Rod Schwartz uses his latest column in Third Sector to make the case for SIFIs (or ‘impact investment intermediaries’ as he’s calls them, possibly in order to communicate with a global audience) charging funders £1,000 a day for their services.

Schwartz’s motivation to speak out is a conference-based conversation with a funder who claims that intermediaries are “incredibly greedy” and that their £1,000 a day charges are ‘indecent’; Schwartz responds with the request that we ‘look a bit deeper’.

The fact that Schwartz is initiating this conversation at all is positive and increases the credibility of both Schwartz himself and the wider ‘intermediary’ sector. He deserves respect for tackling that issue head on rather than blithely pretending it doesn’t exist.

He’s also at least partly right, because a large part of his response to the funder’s charge of indecent greediness consists of an explanation of why buying a set number of days of professional services, delivered by skilled people, is often expensive: “Behind each professional is a team that carries out HR, administration, finance, legal and so on, but whom you don’t bill for their time. In addition, there are sales teams that generate costs and do not win every pitch – and that, even if successful, cannot bill that time to the client. Nearly half the fee is eaten up this way.

This is pretty uncontroversial stuff in itself and strong rebuttal to anyone who really thinks the/a problem with intermediaries is the grasping personal character of the individuals working for them.

Unfortunately, when Schwartz moves beyond the general, rather defending intermediaries fees’ based on either commercial or social value they deliver, he ends up on more contentious ground: firstly by explaining that intermediaries are expensive because they’re based in London, then by pointing out that they do complicated work on ‘transactions’ that ‘are no less complicated than in the mainstream’.

It seems that, possibly due to a decade or two of exposure to voluntary sector thinking, Schwartz has gradually ditched venerable market-based approaches to pricing and value, and is now on the verge of coming out as a supporter of our umbrella bodies’ much-loved, if semi-mythical, ‘full cost recovery’ model.

I’ve been to the workshops and I know that in a market system this stuff  is not really very complicated at all. Intermediaries either prove their commercial value to their customers – a funder pays £10,000 for 10 days work and is satisfied that at least £10,000 of value is delivered to their organisation as a result – or they don’t.

The funder doesn’t need to know where the intermediary is based or how complicated their work is, they just need to know that they’re getting value for money. And frankly, if an intermediary can convince you their input will make the difference between you making a £1million investment that clearly delivers major social returns and some financial return, and making a £1million investment that loses you money while delivering nothing much, that there’s no obvious reason why they shouldn’t earn their £10k in 5 days.

Unfortunately (or otherwise) most intermediary activity in the UK takes place in the dark and distorted world of subsidised markets, where the label ‘intermediary’ or SIFI covers organisations who deliver (some of) a wide variety of different functions, including managing investment funds on behalf of government and other investors, and supporting organisations to become ‘investment ready’.

Intermediaries whose role is to manage and invest social investment funds on behalf of government and other non-City-based investors, or to support organisations as providers on a national programme of government grant-funded investment readiness support, such as ICRF, do not need to based in London for practical reasons but they generally are based there.

Currently some non-London-based charities and social enterprises receiving grant-funded consultancy from London-based intermediaries find themselves paying both high day rates – because intermediaries have to fund the high living costs of their London-based consultants – and peak time travel costs for those consultants to travel up from London for the day.

Fortunately, even in this deeply distorted marketplace, genuine market values still offer an obvious solution. If you’re an ICRF or Big Potential provider and the cost of living in London is forcing up your day rate and leading you to pile huge travel expenses on top, you can move. You can get somewhere quite nice in, for example, Leeds for £200,000.

When it comes to the problem of intermediaries being so costly because their work is complicated, market philosophy once again offers a stark, clear route through the swamp of subsidy. That is, that if intermediaries’ work is so complicated that it’s not possible for them to do it for the money available, they should stop doing it. If all these skilled people quit the market, and the market needs them, it will pay them more to come back.

Or it won’t. It probably won’t but plenty of us want to go and live on full cost recovery island and many would like to fly there on Concorde, sadly (social?) business doesn’t work like that and we have to choose whether or not to do what we want to do for what we can get for doing it.

Schwartz illustrates with his own discussion when he says:

I asked him what his outfit paid its lawyers a day, ‘That’s different,’ he said. ‘What about your accountants?’ I asked.

He argued that too was different.

I’m no legal expert but I understand that being a legal aid-funded defence lawyer for a penniless person is not, in itself, less complicated and skill dependent than being a privately-funded defence lawyer for a billionaire.

It is a bit less lucrative. In June 2013, Law Gazette reported that within the UK’s legal aid system (according to The Bar Council): “under the current rates, the most experienced silks doing the most serious cases such as murder get paid £550 a day (covering a full day in court and two hours preparation). Half of that has to be taken out to cover overheads… So in reality, she said they earn £275 a day.  

Fortunately, our government is now socking it to the highly subsidised  fat cats so that:  “Under the proposed cuts, those figures will fall to £350 and £175 respectively.

The point is not that it’s right that experienced lawyers are now being paid £175 per day (or that there’s any directly comparison between their work and that of intermediaries) but that highly skilled professionals are often paid extremely badly in situations where their work is not commercial.

We’re a nation with some strange approaches to valuing social good – in many local areas the average hourly rate the state pays people to care for an old person is less than the average hourly rate private individuals pay people to walk their dog – but it’s not clear that social investment intermediaries are getting a specifically bad deal in non-commercial markets. Where their customers are paying directly, they just need to get better at selling their services.

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