Interesting stories today. As always the clunking fist of government fails to understand that actually just lowering and not tinkering with taxes would make the investment and charity field better for all while there is an interesting profile of the Peterborough Bond and the team behind it, happy reading:
Social Impact Bonds: A New Model to Reduce Blight
Cities are actively searching for ways to reduce blight. Abandoned properties and vacant lots abound in decaying Rust Belt neighborhoods struggling with manufacturing losses and entrenched segregation. The problem is no less serious in the Sun Belt, where overzealous developers left half-built neighborhoods and overconfident consumers now face waves of foreclosures. And in every city there are investment property owners playing the moral hazard game — they will only clean up their property when enough others do so that they can profit.
Unfortunately, cities have few effective ways to fight blight. Although cities want to reduce the number and impact of blighted places and have owners of vacant or underutilized properties clean them up, they must tread cautiously. The worst-case scenario is that they use too big a hammer, the owner walks away, and the burden is left to the city to develop and maintain these spaces.
But there may be a new tool in the war on blight: a relatively new financial instrument known as the social impact bond (SIB). The idea behind SIBs is that private investors, not the government, bear the risk for large-scale, pricey endeavors designed to build and maintain America’s social service infrastructure.
Social impact bonds are being used to inject private funds into public-sector programs to provide prevention services to vulnerable individuals. Last year saw the first SIB transaction in the United States when the Bloomberg Foundation and Goldman Sachs invested nearly $10 million in a program aimed at reducing recidivism rates of young men held at the New York City jail at Rikers Island.
The Treasury’s 32-page Consultation on Social Investment Tax Relief, which was published in July and which has now closed to submissions, suggested ways to encourage the British public to get behind social enterprises through investment.
However, Mark Hoskin, partner for London-based Holden & Partners, said he had been engaging with the Treasury over the proposals and was concerned that its current form makes it unappealing, especially for advisers.
Mr Hoskin said: “While the social impact investment tax relief may be good PR for government and advisers should be aware of its existence, the likelihood of any product reaching the adviser community is very small because as it stands by virtue of European regulation the cap on any fund raise is 200,000 Euros, which is totally impractical for both social ventures and for IFAs to consider”.
He called this “small fry” when considering how much money enterprise investment scheme-backed or venture capital-backed companies can raise.
Mr Hoskin said: “In terms of the social impact bond, each company should be able to raise about £5m a year, as EIS products can do.
“Furthermore, the rules under which these might be set up will preclude people from going direct and force them to go to advisers that will have to conduct thorough due diligence.”
For the proper distribution of any new product, he said the FCA interpretation of the new scheme was critical and could stop from outset financial advisers looking at it, because the extra benefit to their clients is not deemed sufficient for the compliance risk they were taking on.
Therefore, Mr Hoskin said: “A key point to be made to the FCA would be that the motivation behind investors would not be totally financial. These types of investments lie between charity and investment.”
He suggested to the Treasury that a cap could be placed on contributions of, say, £2000, under which the consumer risk might be deemed low and the FCA would allow the product to be marketed to retail investors without the need for specific advice.
Speaking ahead of the Good Deals social investment conference in London today, Evan Jones at St Giles Trust, said: “We had a bit of a finger-in-the-air approach to understanding how clients engaged with us after our initial intensive work with them on release. A lot were drifting off but we didn’t understand why.
“Through the Peterborough bond, we’ve been able to see really clear trends for the first time. We can see which areas of crime young people are returning to, why people stop engaging with us, how we can stay in contact in a way that’s right for them, and be there for them to turn to if they are heading towards re-offending, as well what work and training are having the most positive effect. We’ve been getting results with some of the most prolific locals who are known for repeat offences.”
The bond is likely to run for six or seven years and see 3,000 prisoners supported. Jones said that because the £5m contract is over a longer period than a normal contract, it means there is more of an opportunity to explore and learn.