The Social Impact Bond, a product of a new era?

Social Impact Bonds or Pay-for-Success Bonds raise private capital to fund nonprofit prevention programs aimed at achieving improved social outcomes that generate government savings.

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Social Finance, Inc., along with several other leading impact investment organizations, was highlighted on stage today by President Clinton at the Clinton Global Initiative Annual Meeting in New York City. Social Finance announced its two-year commitment to develop and launch $100 million in Social Impact Bonds (SIBs) in the U.S. Founded in January 2011, Social Finance is a nonprofit organization working to connect the social sector with the capital markets by structuring and managing innovative investment instruments that generate both social benefit and financial returns.

The Social Impact Bond, also known as a Pay-for-Success Bond, is at the core of Social Finance’s current efforts. The SIB is a new financial instrument that aligns the interests of private investors, nonprofit service providers, and governments in an effort to improve the lives of individuals and communities in need. SIBs raise private capital to fund nonprofit prevention programs aimed at achieving improved social outcomes that generate government savings. If an independent evaluator determines that the pre-defined outcomes have been achieved, the government repays investors their principal and a rate of return that account for a share of the savings. If the pre-defined outcomes have not been met, the government owes nothing

“There has never been a more opportune time to rethink the role of the capital markets in solving persistent social problems,” said Tracy Palandjian, CEO of Social Finance. “At a time when our cities and states face growing budget deficits, Social Impact Bonds provide an opportunity for the private, nonprofit, and public sectors to collaborate and attract much-needed investment capital to improve the lives of the disadvantaged. I am grateful to President Clinton and the CGI community for recognizing Social Finance’s work and look forward to working with our partners to fulfill our commitment to develop and launch Social Impact Bonds."

The Pershing Square Foundation, a CGI member, is a partner in Social Finance’s commitment to launch Social Impact Bonds. “Social Finance is well-positioned to manage the complexities of originating, structuring and executing Social Impact Bonds," said William Ackman, CEO and Portfolio Manager of Pershing Square Capital Management and founder of The Pershing Square Foundation. "We are delighted to work closely with Social Finance on their commitment as they pioneer this innovative financing solution."

Social Finance is currently working with policy makers in a number of states who are considering launching Social Impact Bonds. In May, Massachusetts became the first state in the nation to formally explore implementing this new financing tool for effective nonprofit organizations. In its work in Massachusetts, Social Finance has highlighted a number of proven nonprofit preventive programs that could be considered for a SIB, including permanent supportive housing for chronically homeless individuals; housing-based support for homeless families; home- and community-based aging-in-place programs for elders; community-based alternatives to juvenile detention; and alternative community corrections for adult offenders

Next Finance , September 2011

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