Gaining Momentum: An insight into the future of Australian Social Benefit Bonds
The Newpin Social Benefit Bond was Australia's first attempt at following in the footsteps of other countries in an effort to tackle some of the most entrenched and ongoing social issues in our country. Launched in 2013, the early success of the NSW based project has lead governments across the country to rethink how they fund, test and deliver social services with a boost from private investors.
Elyse Sainty leads Social Ventures Australia's (SVA) Social Impact Bond (SIB) related work and has been instrumental in the development and launch of both Newpin, a SIB aiming to restore children with their families, and the Aspire Social Impact Bond, which focusses on homelessness in the South Australian region. Sainty spoke with Industry Moves about the process behind setting up the offering, the expectations of investors and why she feels that this new approach will lead to an improvement in Australia's social services.
Q&A with SVA's Elyse Sainty
How long did it take from initial discussions to the launch of Newpin, the first SIB in Australia?
The Newpin bond took just over 18 months from when the proposal was first submitted through to when we had the bond up and running. That was a reasonable period of time given it was the first time any of us had worked on a SIB.
After laying the groundwork, was the South Australian process quicker?
The South Australian bond (Aspire SIB) actually took a little longer. That wasn't necessarily because it was harder, there were just circumstances that were different to Newpin, particularly around the fact that we were dealing with homelessness. The South Australian government took on a tricky cohort because both costs and savings arise across multiple departments. They had to go through the exercise of data matching, working across three different line agencies to look at the base line costs and negotiations around what the payment terms would be in relation to each of those savings areas. That was more complex than Newpin which was just within Family and Community Services.
Former Premier, Mike Baird was a champion of social bonds and impact investments, do you feel that his departure will affect the flow of new opportunities in New South Wales?
The short answer to that is, no. It's something that has good support from the new Premier as well. The last time I met with Premier Berejiklian was out at a Newpin centre, where she came along around the time of our last annual report. She is also a very strong supporter of the model. We've seen, under Mike Baird and Premier Berejiklian, that NSW has an embedded policy and commitment to continuing to explore how to best roll out social impact investment opportunities and outcomes contracting. We're very comfortable that there won't be a change under the new leadership.
The other thing that we have observed around the country is the really strong bipartisan support for the concept. We've seen it piloted now under both the Liberal and Labor government, so I think this gives both investors and ourselves some confidence that there won't be a sudden change of heart with a change of government.
With no two SIBs entirely alike, do you feel that the success of the Newpin project may give investors too high an expectation of returns both socially and financially for future offerings?
We hope not. First of all, we've got to be careful to manage expectations because the Newpin bond is still in its early days of outcome measurements, so over the first three years it's been in the ramp-up phase and just like any investment, past performance is not always an indicator of future performance. So far we don't think that investors have come in and looked at Aspire or other bonds with an inflated expectation. I think people are prepared to look at each one on its merits. There's always a careful assessment of what the risk return profile is and then investors are weighing those options up.
I don't think people are getting too over excited, they seem to be aware that it's still very early in the market cycle.
Do you feel that the structure of social bonds and the process that service providers need to go through improves the programs that are offered?
Yes, very much so. Uniting, which runs the Newpin program, would vouch for that. It improves services in a number of ways. First of all, it really makes sure that there is a sharp focus on who the program is targeted at, how you define that and exactly what it's going to do. It puts a focus on operational rigour in rolling the program out because there is so much transparency around the results that it requires organisations to be on their toes around demonstrating how they're going to run their program
At the moment, it seems like the NGOs that are participating are large single entities. Do you feel in the future that there will be a way to group smaller NGOs into an umbrella type fund.
This is one that I'm actually delighted to be able to correct you on! If you look at the Aspire bond, the main organisation there is Hutt Street Centre. They're working in partnership with a number of housing partners, but Hutt Street is effectively the main contractor and they are not a large organisation at all. They are a boutique service delivery organisation, all they do is homelessness and the only state that they're in is SA. Their annual turnover is only about $5million. They've only been able to participate in the bond because they worked closely with us and also because there was a strong collaborative relationship with the South Australian government.
Obviously the hard work is still yet to come with the service delivery, but in terms of the contracting phase, I think credit needs to go to Hutt Street, as a small organisation, because they were prepared to commit significant resources to go through the development and they've done it! Now they've got long term funding for a significant scale project for years to come.
Who is in charge of the data collection in order to gauge the success and returns for investors?
This is where SIBs have such an enormous benefit and a huge role to play in that they act as a catalyst for governments to use the data that they already have to enable an analysis of program outcomes. So it's governments that are the source of outcomes data in the first instance. The extra work that they're having to do is matching those individuals who are in the programs back into their data sets. Because it's coming out of the government systems, it means that there are no blinds spots in the data at the program delivery end. Things are generally measured on what we call an 'intention to treat' basis. So, once you're in your group then you're included in the results, even if you drop out of the program. It's a robust measurement approach. We also bring in an independent certifier, generally one of the Big 4 accounting firms, who will do a verification process to make sure that the data has been appropriately extracted and calculate the results of payments to the SIB trust and then to the investors.
What happens at the end of an SIB Contract?
I think this is a really important question for governments to consider at the outset. In some cases they might be using this mechanism to test an intervention methodology, in other cases they might be looking to fundamentally change the way that they procure in a particular area. At the end of the contract it should really depend on what the government was trying to do at the outset.
You could see the governments potentially saying that they've tested the structure and shared the risk with investors and now they are comfortable that it works they will just fund it on a regular fee-for-service type basis; or they might say that they want to scale up and continue to pay on an outcomes basis, which may require less investor capital at that point.
A range of different outcomes are possible and we haven't seen enough bonds come to the end of their cycle to have a strong sense of what happens next, but what we will have is a really strong evidence base around what's working and what's not and that will give people confidence.
With the appetite for private investment in SIBs growing, do you feel that there is a danger that the government will move away from any type of funding for these projects?
I think it's hard to say at this stage. The important thing is that it's not so much about the investor capital: it's really about the outcomes focus and the outcome payment. There is nothing like putting a financial obligation on the measurement of outcomes to make people do it properly and do it consistently over time.
I think what we'll continue is that shift towards more rigorous outcome measurements at a program level, utilising government data. I'm hopeful of this being the thing that becomes really embedded. Who knows how the payment structures will sit around that - we will see how it evolves - but I think that there will be a continuing shift towards outcome contracting and then investor capital will be needed to play a role wherever organisations have a need for working capital and risk share.
I don't think governments will walk away from that principle of outcomes contracting. I think they're learning a lot about it and that it will continue to become more mainstream.
How does it feel making the opening address for such a positive annual report of the Newpin SIB, showing such healthy returns for investors and great social outcomes?
It's wonderful! It's a similar feeling to knowing that we have the money in the bank to start the Aspire program because you get to see these larger scale programs given secure funding and it makes the complexities and hard work of bringing it all to life really worthwhile.
Particularly for Newpin, it's about seeing the families that benefit. I've been out to service centres many times and met many of the mothers and the kids; that really brings it all alive for me because that's what it's all about. That's the first level of satisfaction and the next level is knowing that there is such a strong evidence base building up which will support the extension of programs that work. Lastly, I'm just really pleased for the investors who have taken the early risk and have seen both social and financial returns. It's all very, very satisfying.
Editors Note - This was the opening address for the 2016 Newpin Annual Investor Report:
Dear Investor,
Social Ventures Australia (SVA) is pleased to present the 2016 Newpin Social Benefit Bond (SBB) Annual Investor Report. The Newpin SBB has performed well over the third year in both a social and investment sense. Highlights for the period include the opening of another new centre in Ingleburn, and the successful restoration of a further 67 children. Overall, the program has now restored a total of 130 children to their families and delivered a 12.15% pa financial return to investors. The program has also supported an additional 47 families preventing their children from entering into care.
