GIIN conference: Goldman to announce more social impact bonds, UK SIBs are working says Minister

Goldman Sachs is actively looking at new investment opportunities in social impact bonds (SIB) and is close to announcing further deals within weeks, Andrea Phillips, Vice President at Goldman Sachs, told the Global Impact Investing Network (GIIN) conference in London last week. “You will hear about these in the coming weeks,” Phillips announced, confirming that Goldman would add to the existing two social impact bonds it has so far financed in the US. SIBs are loan structures repaid on the success of a given social outcome, or not if the programme fails. Goldman’s first SIB launched in August 2012 was also the U.S.’s first, covering the $9.6m costs of a programme designed to reduce youth recidivism among young men incarcerated on Rikers Island. Goldman’s second SIB investment supports a $4.6m preschool program in Utah that focuses on improving school readiness among three- and four-year-olds. Phillips told the conference of the risk issues that Goldman looks at around the underwriting of SIB investments. She said one major variable was implementation risk: successful project performance and its measurement in what are difficult social projects. A second difficulty, she said, was gauging “appropriation”, the danger of a political change locally or nationally causing SIB contracts to be changed or not honoured.A third complication, she said was clumsily named “newness” risk, but it incorporated both the novelty of investing in such projects but also the pricing of the risk for the loans.
In a keynote speech to the conference, Nick Hurd, UK Minister for Civil Society, said there was good cross party political support for the 13 UK SIBs in existence. Hurd said the biggest issue for issuing more SIBs was not a lack of capital or finding social entrepreneurs, it was sourcing a pipeline of investment grade opportunities. He said the UK’s first SIB, a prisoner recidivism bond at Peterborough Prison, was working according to the recent publication of the first set of reoffending rates under the programme. And he added that many UK local authorities were looking at a SIB put together by Essex County Council where eight investors provided £3.1m to establish a programme of intensive support for high-risk adolescents and their families. Hurd said there was a real process under way between government, private investment and the social sector: “One big priority, however, is to make sure that SIBs have relevance to real people. If we are to sustain the cross-party support people have to see the tangible proof of social impact projects.”