LEVERAGING PARTNERSHIPS:

STAKEHOLDERS WORKING TOGETHER

2ND ANNUAL SOCIAL FINANCE FORUM

Michael G. McMillan, Ph.D., CPA, CFA Director, Ethics and Professional Standards Twitter: @M_G_McMillan http://blogs.cfainstitute.org/investor/author/michaelmcmillan/

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“The way we invest creates the world we live in.”

Amy Domini , Socially Responsible Investing

Social Finance: The Future of Finance Key Trends Measuring Social Impact Public Private Partnerships Social Finance in the United States Developing a Network of Intermediaries Moving Forward Role of Government Program Characteristics

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To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.

Ethical Decision Making

Social Finance

Partnerships

Financial Tools

Innovation

Financial Instruments

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Greater Accessibility

Increase in Funds and Managers

New Metrics to Assess

Impact

Broader Group of Investors

Growth in Investible

Capital

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Global Impact Investing Rating System (GIIRS)

Impact Reporting and Investment

Standards (IRIS)

IRIS Data Briefs Global Impact

Investing Network (GIIN)

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Governments officials are turning to the private sector to provide services that:

• they have not been able to provide;

• they can no longer afford to provide;

• the private sector can provide more efficiently and effectively.

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• White House: Pay For Success (PFS)

Federal Government

• Human Capital Performance Bonds Minnesota

• Social Innovation Financing Trust Massachusetts

• Rikers Island- First US Social Impact Bond New York City

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2012 Budget: $100 Million for workforce development, education, juvenile justice, and care of children with disabilities.

2012: Departments of Justice and Labor: launched PFS programs in criminal justice and workforce development.

2013 Budget: $109 million to test PFS in a broader range of program areas including education and homelessness

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Pay for Performance Act – authorized the sale of $10 million of

bonds.

Proceeds create a pool to pay service

providers when they perform.

Financial benefits earned by state pay interest, amortize

principal, and cover administrative

costs. Risk borne by service provider, who can

earn higher payouts through better performance.

Sold to private investors

Population: chronically

unemployed.

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Holds outcome payments for the duration of a social impact deal.

Funded through annual appropriations.

Focus: Homelessness (stable housing) and juvenile justice (reduction in recidivism)

State will select service providers and intermediaries.

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Goal: 10% reduction of juvenile recidivism over four

years

MDRC: will manage 2

service providers.

Goldman Sachs:

provides $9.6

million in working

capital to MDRC as a

loan.

Bloomberg Philanthropies:

guarantees $7.2 million of

the loan through a

grant to MDRC

Goldman can earn a maximum

of $2.1 million if

recidivism is reduced by more

than 10%

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Facilitate the responsible and effective replication, diversification, and scaling of SIB models

Educate and communicate to all stakeholders what SIBS are and are not.

Develop a cross sector “Community of Practice” to provide:

1. Centralized communication vehicle

2. Comprehensive best practice tool box

3. SIB forums and conferences

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Social Finance

Social Enterprises

Governments

Financial Institutions

Consultants

Universities

Foundations

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Performance Based

contracts

Measuring Impact

Foundational Support

Safety Nets

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Potential for high net benefits Measurable outcomes Well defined treatment population Meets the needs of a sizeable population Reliable comparison (counterfactual) group Focuses on prevention Safeguards against harming the treatment population Have a multi year track record (at least 5 years) Have a demonstrated record of rigorous evaluations Deliver statistically significant results Be replicable and scalable Deliver taxpayer benefits in 5 years or less.

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“The gratification of wealth is not found in mere possession or in lavish expenditure, but its wise application.”

Miguel Cervantes