Social impact bonds: what’s the deal?

A €200m social impact fund structured by subsidiaries of France’s Caisse des Dépôts to finance emergency accommodation for refugees in the country has seen one of the largest social impact bonds deals to date.
The Hémisphere Fund is an innovative mixture of €100m in debt from the Council of Europe Development Bank and €100m in equity from six French institutional investors, including Aviva France, BNP Paribas Cardif, MAIF, CNP and Caisse des Dépôts. The money raised will be used to buy 100 budget hotels and turn them into facilities that will be able to receive either the homeless or migrants. A portion of investor return is tied to measured social outcomes as a premium.

“The maximum investors can get if all social outcomes are obtained is somewhere around 5%” – AMPERE Gestion CEO Vincent Mahé on one recent impact bond

Explaining further, Vincent Mahé, CEO of portfolio manager AMPERE Gestion, a Caisse de Dépôts subsidiary that co-structured the deal, says: “The backers are institutional investors. They are not charities and they cannot afford to lose completely their capital. Not at this scale. Their capital is at risk like any conventional investment. And they know they could get a return of 4.5% if the social outcomes are not met.
“But if the social outcomes are met, they will get a premium that will improve their return by 0-15%. The maximum they can get if all social outcomes are obtained is somewhere around 5% .
Mahé, who is also general counsel to SNI Group, a social housing real estate subsidiary of Caisse Des Dépôts that co-structured the social impact bond, says it has a strong social purpose. “Like every European country, France has been under a very strong strain because of the migrant crisis. Our structure doesn’t just provide accommodation, it also provides support that is really needed for migrants to help them to get social security benefits etc. The situation before was quite unsatisfactory for the government, as it put them into normal hotels and that was very costly and also unsuitable from a safety perspective. The families could not cook or receive social support. So we have social workers and their social outcomes performance is measured.”
The social workers are working towards four outcomes: getting 100% of children to attend school; moving families to permanent accommodation; getting families on social security; and providing support with other types of coverage.
Mahé says the institutional investors have been very supportive of the social part of the deal: “I must say, they were remarkable, because in about five places out of the 60 municipalities where the fund bought buildings, it became difficult to set up because of the opposition of local authorities and we at some point had difficult press coverage. When we opened a centre in one community, they built a wall to prevent us from entering our own property in the middle of the night. Somewhere else you have a mayor who doesn’t want migrants in his town, and publicly opposed the project. ”
KPMG will do the impact audit and Adoma, a homelessness NGO which will run the centres, is acting as outcome payer.Mahé says the social impact bond model lends transparency and accountability to the deal for Adoma, set up in the 1950s to provide accommodation to immigrants after the Algerian War.
“Investors did not come for the premium. It won’t change the deal for them if they don’t get the performance premium, as it is a little part of the return. But it is still very important for us because of the transparency that it gives to operating this scheme. In France, public authorities have very little information on how the system works. They pay grants to organisations and they have very little reporting on what is actually done. You will experience that it is actually difficult to get accurate statistics on the exact number of people who are supported.”
The focus on measurement of social outcomes is being used as a way to attract support for other social impact bond-like models. For example, UK-based charity West London Zone uses what it terms a “collective impact bond” model to encourage local philanthropists to act as outcome payers – instead of simply giving donations – in an initiative to support disadvantaged children in schools in the traditionally richer parts of London. It has stringent targets to meet with children around educational attainment and school attendance.
Finland has also launched a social impact bond focused on refugees. It has been backed by the European Investment Fund, which has invested €10m into the product that seeks to support the integration of migrants into the Finnish labour market.
The social impact bond has been structured by Finnish fund manager Epiqus, and has raised a total of €13.5m. Along with the European Investment Fund, investors include Finnish retail chains, the Orthodox Church of Finland and private investors.
The outcome payments or returns, paid by the Finnish Ministry of Economics and Employment, is based on how much the government make in tax payments from those employed through the scheme.
Jussi Nykänen, a partner at Epiqus, explains: “They check how much they get from taxes from our target group, compared to a reference group, and if the outcome is positive they pay half of the tax receipts to investors. They do the same with employment – they measure how much in employment benefits they have given to our target group compared with a reference group.”
Epiqus has done much of the data modelling work to inform outcome payments with help from Finnnish Innovation Fund Sitra, which has also invested in the social impact bond. Sitra provided access to government data on information such as the cost of getting refugees into jobs.
Mika Pyykkö, project director, impact investing at Sitra says it has a focus on social impact bonds. “There is a very huge sustainable gap in the government and in Finland. We are using social impact bonds to challenge the public sector to use taxpayer money in a different way. Focused on outcomes and prevention.
“We hope after five or ten years we don’t need social impact bonds anymore in Finland because the public sector can really find results from private companies or NGOS – it doesn’t matter the status of service provider. It is a tool to make a systemic change.”