CBO Peer Learning Event: Employment, housing & crime: Working with investors
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Big Society Capital is an independent financial institution aimed at growing the social investment market in the UK by providing capital to social finance intermediaries and supporting social enterprises. The document outlines the structure and performance of social impact bonds (SIBs) in the UK, noting the growth and necessity of investor involvement for achieving social outcomes. Key considerations for investors include risk sharing, outcome payment structures, and alignment with social needs for effective program implementation.
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CBO Peer Learning Event: Employment, housing & crime: Working with investors
- 1. COMMISSIONING BETTER OUTCOMES INVESTOR WORKSHOP Daria Kuznetsova, Strategy and Market Development Director, Big Society Capital, December 4, 2015 [email protected]
- 2. ABOUT BIG SOCIETY CAPITAL Big Society Capital is an independent financial institution with a social mission, set up to help grow the social investment market. Our remit is to grow the social investment market in the UK. We do this by making capital available to social finance intermediaries who in turn fund frontline organisations. We also act as a market champion to build understanding and capacity across social enterprises, charities and government around the use of repayable capital in delivering social outcomes
- 3. OUR MISSION TO SUPPORT AND GROW THE SOCIAL INVESTMENT MARKET THROUGH OUR TWO ROLES • Improving understanding of social investment • Creating a better environment for social investment, e.g. tax relief • Encouraging more investors to become social investors • Increasing awareness among charities and social enterprises that might benefit from social investment • £104 million drawn down with co-investment by the end of 2014 • General and specialist funds: loans, equity, regional, social issue, community • Social Impact Bonds • Social Banks • Charity Bonds • Supporting market infrastructure As an investorAs a market champion ABOUT BIG SOCIETY CAPITAL
- 4. PORTFOLIO AND ONE YEAR PIPELINE Portfolio Pipeline • Social Prime (e.g. WP+) • Charity Bonds • Social property funds - Transitional - Supported living - Community 4 Scale Portfolio Pipeline • Blended capital targeting sub- £150k loans • Further regional and social bank investments 1 Small & medium charity finance Portfolio Pipeline • Issue focused partnerships - Corporates - Foundations & charities • Social Impact Bonds - New funds and platforms • Tech for Good • Innovation pilots 2 Social innovation Portfolio Pipeline • Retail platforms • Crowdfunding match fund for SITR • Community Assets 3 Participation NESIC COMMUNITY SHARE UNDERWRITING
- 5. £9.96m max outcome payments £1.65m investment capital THERE ARE NOW 31 SOCIAL IMPACT BONDS IN THE UK 5 NationalCommissionerLocalCommissioner 2010 2011 2012 2013 2014 2015 Peterborough Prison Essex Children at edge of Care GLA Rough Sleepers St Mungos DWP 1 APM DWP 1 Stratford DP DWP 1 Indigo DWP 1 Triodos DWP 1 PEF DWP 2 T&T DWP 2 Adviza DWP 2 Prevista DWP 2 3SC Manchester Children in Care Newcastle Ways to Wellness Worcestershire Social Isolation IAAM Adoption GLA Thames Reach DWP 1 Links 4 Life Birmingham Children in Care FCF Local Solutions FCF Fusion Housing FCF St Basils FCF Depaul FCF The Y/Ambition FCF Home Group YEF Futureshapers Sheffiled YEF Unlocking Potential YEF Teens and Toddlers YEF Prevista FCF P3 Cardiff children in or at the edge of care Evolution of Social Impact Bond market in UK Observations • 31 SIBs operational in the UK to date • More than 50 SIBs in various stages of development • Certain social issues more appropriate for SIBs than others • Range of structures £1.34m max outcome payments £550,000 investment capital £2.5m max outcome payments £900,000 investment capital £4.9m max outcome payments £3.1m investment capital £4.5m max outcome payments £1.5m investment capital £3.7 max outcome payments £900,000 investment capital £7.9m max outcome payments £1m investment capital £3.74m max outcome payments £690,000 investment capital
- 6. WHO ARE THE INVESTORS • Investors can either invest directly or through a specialist fund manager • Range of social and financial return requirements • Range of risk appetite Foundations • Barrow Cadbury Charitable Trust • Esmée Fairbairn Foundation • Friends Provident Foundation • Omidyar • The Henry Smith Charity • Johansson Family Foundation • LankellyChase Foundation • The Monument Trust • Panahpur Charitable Trust • Paul Hamlyn Foundation • Tudor Trust • The Prince of Wales’s Charitable Foundation • King Baudouin Foundation • Berkshire Community Foundation • Impetus Trust • Montpelier Foundation Institutional investors • QBE Insurance • European Investment Fund • Great Manchester Pension Fund • Merseyside Pension Fund • Deutsche Bank Retail Investors Other Investors • Bracknell Forest Homes • Buckinghamshire County Council Specialist fund managers • Bridges Ventures Social Impact Bond Fund • Caf Venturesome • Keyfund • Big Issue Invest • Nesta
- 7. WHY ARE SOCIAL INVESTORS INVOLVED IN SIBS? Why are social investors involved in SIBs? • Social Issue – commitment to tackling social need and achieving better outcomes • Scaling up innovative interventions - facilitating take up of innovative interventions that could transform existing approaches • Financial return directly linked to social impact - Financial return is only achieved if social outcomes are generated • Rigour and focus from hands on & interactive investment approach by investors working in collaboration with delivery bodies • Capacity building for future PBR-type contracting from central Government or Europe
- 8. WHAT IS THE POTENTIAL VALUE OF INVESTOR INVOLVEMENT Risk sharing SIB delivery experience and shared learnings Constructive challenge and rigorous performance management Networks and relationships Additional capacity building for the providers
- 9. WHAT ARE INVESTORS LOOKING FOR Structure and incentives • Does the outcomes contract and the SIB payment mechanism maximise delivery of impact? • How robust are the outcome assumptions and are the outcome payments aligned to the intended impact? • How are risks shared across all parties? • Are there other external bodies that can influence success? Are there incentives aligned to those of the programme? • Are there structures to respond to effective performance management? Proposed Intervention • What evidence is there for the intervention delivering the target outcomes? • Do we understand the needs of the beneficiary group and is the intervention appropriately targeting those needs? Delivery plans • Do the staff of the delivery organisation (s) have the relevant expertise and skills to deliver the programme? • Are governance structures robust? • Is performance management in place? • Are there data systems in place or are there plans to develop systems? • How ready is the organisation to ramp up operations? Local buy in • Is there buy in for the programme with local partners? • Are the appropriate partnerships set up to deliver the programme? • Is the referral pathway clear?
- 10. RISK Commissioner Investor Provider Intermediary Reputational risk Financial risk (savings <outcome payments) Financial risk (cost> outcome payments) Intervention risk Execution risk Demand/Referral risk Other
- 11. INVESTOR LESSONS LEARNT Development Phase • Stakeholder buy in • Outcome and cohort definition • Staged payments • Intervention development • Incentive alignment • Risk sharing Legal • Termination clauses • Investor commitment and caps on liability • Exclusivity of service provision • Intellectual property rights over service delivery Operational • Ramp up • Data systems • Performance management • Governance • Local buy in • Impact of policy changes
- 12. GROUP EXERCISE
- 13. TASK IN GROUPS You are running a fund with investment from Big Society Capital, 2 foundations and a Local Authority Pension Fund Your mission is to maximise social return whilst returning capital with a small return to your investors. You aim to do this by balancing social impact, risk and return across your portfolio. You have £500,000 left to invest and there are 3 Social Impact Bond opportunities Discuss what type of questions you would ask each of the programmes and decide which you would back/
- 14. APPENDIX
- 15. Provider holds outcomes- based contracts directly. No investor relationship with commissioner Who are we backing? Level of outsourced performance management Direct SIB Intermediated SIB Managed SIB Typical entity structure Performance management Investing in Service Providers Investing in Prime Contractors Deal origin Investor-owned ltd co. with Board, which holds main PbR contract, and sub- contracts to service provider Service providers and investors working with commissioner Prime contractor working with commissioner Newly formed prime contractor, which holds PbR contract, and tenders for service providers Within service provider Commissioned by SPV Provided by prime contractor, which recruits a small team Example SIB MODELS Established service provider bidding for PbR contract Within service provider Direct working capital Typical financing Provider holds PbR contract directly, but Investor receives agreed share of PbR commissioner payments Investor loan to service provider, with interest rate tied to contract success SPV pays revenue to service provider and receives PbR payments directly from commissioner Prime contractor pays revenue to service provider and receives PbR payments directly from commissioner Investor pays revenue to service provider and receives PbR payments directly from commissioner
- 16. HOW HAS THE SIB MARKET EVOLVED • Diversity of risk sharing structure • Different commissioners (central govt, local authority, CCG) and range of social issues – homelessness, youth unemployment, children at the edge of care, long term conditions and others • Most national SIBs have contract duration of 3 years with locally commissioned SIBs being longer • Combination of rate card and individual transactions • Some have funded new innovations with many using SIB mechanism to scale evidenced approaches • Contract value £1m - £10m with investment requirement usually <£2m • Range of outcome metrics and evaluation methods (historical, quasi experimental) • Other than Peterborough, outcome prices have been set per participant and paid when outcomes have been achieved. • Increasing use of intermediate outcomes • Biggest challenges have been the availability of measurable outcomes and resource required to set up 16
Editor's Notes
- #4: Through our two roles as market champion and as an investor, we are bringing this vision to life