SIBs have done the right thing by calling off the Rikers Bond and making the ‘rules’ clear but the potential exists and that is what investors see. Two stories review the state of play from the US in today’s SIB News…

Wall Street Not Giving Up On U.S. Social Impact Bonds
Jessica Toonkel – Reuters

Wall Street firms like Deutsche Bank, Santander Bank and Bank of America are still interested in backing U.S. social impact bonds, despite the failure of the first such initiative.

Social-impact bonds allow private capital to be funneled into philanthropic projects usually funded by governments and charities. Investors receive a return based on whether a project saves public money by addressing the social issue it targets.

Goldman Sachs helped to fund the first such program in the United States three years ago, a $9.6 million plan to reduce recidivism among teenagers at New York’s Rikers Island jail.

Last month, the program’s third-party monitor, the nonprofit Vera Institute, pulled the plug. It announced the initiative, originally intended to run for four years, would shut down in August after failing to hit its goal to cut repeat offenses by 10 percent. Goldman lost $1.2 million and Bloomberg Philanthropies – a partner in the project – lost $6 million, which would have been recouped had the program met its goals.

Still, the idea of social impact bonds, also called pay for performance contracts, has appeal for those who continue to participate in and seek deals in that space, officials at the firms told Reuters.

Wall St. Money Meets Social Policy At Rikers Island
Eduardo Porter – NY Times

First, the control group fell apart. Wardens at Rikers Island, the New York City jail, could not separate teenagers who were to participate in a course of cognitive behavioral therapy from those who were not supposed to attend.

Then the city’s Education Department, which had offered to put teachers on Rikers to assist the intervention, pulled out. And the budget of the Osborne Association, which had been enlisted to carry out the therapeutic program, was cut when Rikers’s teenage population unexpectedly fell below the level written into its contract.

“We needed two facilitators in each class instead of one, and we were serving twice as many kids because we couldn’t separate the groups,” said Elizabeth Gaynes, chief executive of Osborne.

“We hoped to have people in the community to continue the M.R.T. outside after kids left, but we had to take outside staff and put it back in the jail,” she said, referring to the therapy by its formal name, Moral Reconation Therapy.

Can something that fails prove to be a success? That’s the question surrounding a bold experiment in putting Wall Street techniques to work in shaping government policy.