Why Social Impact Bonds Are Seen As Gaining Traction

Source: Nora Colomer, The Bond Buyer, May 18, 2016 (Subscription Required)

The use of “social impact bonds” as an alternative financing tool is on the rise and news that Chicago’s first venture into the space will pay off for investors demonstrates the benefits, market participants said. As of March, 10 projects have launched in the U.S. and dozens of projects are potentially in the pipeline, said panelists who discussed the topic at The Bond Buyer’s Midwest conference in Chicago Tuesday. At least 20 states are considering legislation to boost such “pay for success” ventures. … Chicago stepped into the SIB arena in 2014 with a $17 million privately funded investment used to expand early childhood education and the first results were circulated this week. The expansion, which relied on an additional $4.5 million of state grants and $10 million in city capital funds, allowed the Chicago school system to provide pre-kindergarten to more than 2,600 additional children over the four-year term of the project. The lenders — Goldman Sachs Social Impact Fund and Northern Trust in senior roles and the J.B. and M.K. Pritzker Family Foundation as a subordinate lender — are only repaid if students realize positive academic results. The program’s goals include increasing school readiness, improving third-grade literacy, and reducing the need for special education services. Based on those metrics, the initial outcomes has met the established criteria and investors are now assured a $500,000 “success payment,” said panelist Deborah Kasemeyer, senior vice president at Northern Trust Co. …