An Intern’s Perspective: My Summer at Social Finance

This summer, I had the privilege of serving as the first [Harvard University Institute of Politics] Director’s Intern at Social Finance (SF), a Boston-based nonprofit organization dedicated to mobilizing investment capital to drive social progress.

Central to SF’s work is an innovative financing tool called the Social Impact Bond (SIB), a public-private-nonprofit partnership that has the potential to scale evidence-based social interventions, create taxpayer efficiencies, and generate financial returns for investors. SF structures and manages SIB transactions, and also helps governments and service providers develop the capacity to become stakeholders in these initiatives.

Today, there are four SIBs operating in the United States—directing $50 million in capital to the social sector—and over two dozen additional states and counties actively pursuing SIBs in their respective jurisdictions. These projects are aimed at addressing a diverse array of issues in areas such as health, education, homelessness, criminal justice, and workforce development.

The work I was assigned at SF was engaging and informative, providing me the opportunity to gain real insight into the emerging field of Pay for Success and Social Innovation Financing. In my role as a communications intern, I updated SF’s social networking outlets, marketing materials, and website on a regular basis and took on ad hoc responsibilities as they materialized. The most challenging and rewarding projects I worked on this summer involved constructing a comprehensive database of SIBs in operation and development around the world and writing a post for the SF blog that was later picked up and circulated by the global daily SIB Newsletter.

When I first walked into the office, I was surprised (as most visitors are) by the conspicuous absence of cubicles or partitions. Everyone—from Associates to the Vice President, Managing Director, and CEO— sits side by side at adjoining desks. As I bounced between temporarily available seats over the course of the summer, developing a deeper understanding of different projects and closer relationships with my fellow coworkers, I quickly realized the value of the open floor plan. This unique layout facilitates a collaborative work environment and speaks to the firm’s people-centric culture.

Throughout the summer, I received constant guidance and support from my supervisors, who were just as willing to answer questions in my seventh week as they had been on my first day. The team members, universally inspiring in their knowledge and passion, were always open to sharing their experiences and offering advice. Bonding occasions ranging from impromptu coffee breaks to newly instituted “Food Truck Fridays” were highlights of the internship.

I am incredibly grateful to the SF staff for taking a genuine interest in my development and making me feel like part of the team. I would also like to thank the IOP for coordinating what was truly a fantastic internship experience.

This summer marked a particularly exciting period of growth for this nascent sector with the introduction of bipartisan federal Pay for Success legislation in Congress (the Social Impact Bond Act in the House of Representatives and the Pay-For-Performance Act in the Senate), the publication of the United States National Advisory Board on Impact Investing’s recommendations for supercharging the industry, and the launch of the Social Innovation Fund’s $11.2 million Pay for Success grants competition.

Though I will no longer be held accountable for remaining informed of such advances in the field, I fully anticipate following the evolution of this exciting space to a mature and established industry trusted to tackle society’s most complex challenges.

Entry by Maddie Sewani, Harvard University ’16

This post was also published by Harvard University Institute of Politics here.

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First Official Results Demonstrate Positive Outcomes at Peterborough

Today, Social Finance UK released the first official results on the Peterborough Social Impact Bond (SIB)—the groundbreaking transaction that inspired numerous projects around the world.  An independent evaluator found that the SIB-financed program, One Service, reduced reoffending among the first cohort of 1,000 ex-prisoners by 8.4 percent compared to the national experience.  If this trend continues, investors in the transaction will recoup their principal and earn a positive return when the project concludes in 2016, as this reduction exceeds the performance threshold of 7.5 percent.[1]

Beyond remaining on track to deliver social and financial returns to investors, the project at Peterborough is also demonstrating some of the core benefits of SIBs.  The project catalyzed a policy conversation throughout the United Kingdom about how to better rehabilitate short-term offenders, and the Ministry of Justice recently announced a nationwide program to deliver services to this population.  This underscores the potential for SIBs to spur government reform.

Additionally, the program illustrates substantial operational improvement over time, reflecting the power of data-informed project management and flexibility that are core to the SIB model.  Engagement and uptake of services in prison increased from 74 to 86 percent since services began, and from 37 to 71 percent post-release as One Service adjusted its operations.

As the world’s first SIB, Peterborough has become an iconic program, and in that context we are pleased and encouraged by these results – both as a sign of progress for the Peterborough project itself, and for the evolution of the entire sector.  They indicate that active performance management is critical, that investors are indeed taking on risks, and that the deal was well-structured to benefit all stakeholders in a fair and reasonable manner.  As clear-eyed practitioners in the field, we are well aware of the challenges inherent in launching a new financial instrument, and are mindful of the need for continual learning.  In that sense, early data points like these are valuable to all of us seeking to advance and build a strong field.

Perhaps most important, however, today’s announcement reminds us that the real value of SIBs lies in their ability to improve lives for vulnerable and underserved populations; the financial instrument is a means to an end.  As rigorous evaluation now reveals that the Peterborough project is delivering a meaningful improvement in life outcomes for formerly incarcerated individuals, which translates into fewer crimes, fewer families divided by the return of a father or son to prison, and increased numbers of ex-offenders who find gainful employment. This is the real bottom line, conveying the promise and power of the SIB model.


[1] There was a provision for early outcome payments in August 2014 had the program outperformed and delivered a 10 percent reduction in recidivism for the first cohort.  Investors will not be receiving these early payments, but are well on track to receive outcome payments for both cohorts as scheduled in 2016.

Entry by Jane Hughes, Director of Knowledge Management 

Guest Blog from SFUK Director of Peterborough Project: The One Service Delivers Results for Peterborough Prisoners

Finally we can answer the question about how things are going in Peterborough. All the indicators so far had been positive but it’s great to hear that reconvictions are down by over 8%. If we keep up our hard work, our investors look likely to make a return in 2016.

This project oozes innovation and it has been so exciting to be part of it. The team of staff and volunteers are incredible, as are our local partners, so it is no surprise to find that we have had a positive impact. You often hear people talk about multi agency working but I’ve never experienced it quite like this before. The fact that we had seven years, a flexible budget and one outcome, to reduce crime, resonates with agencies across the spectrum and their buy-in has been fantastic.

It’s been hard to get an accurate sense of performance up until now as the control group hadn’t been created. We do know that clients and stakeholders have been reporting that crime is down and people are changing habits of a lifetime but it is so good to see it in black and white. (It’s official!)

Our clients face multiple barriers and often have entrenched behaviour patterns so this journey hasn’t been an easy one. I am so proud of the way they have embraced the opportunities and made efforts to change their lives. It has been really exciting to see them open up and engage with the service. Some take time to build trust, and progress has been slow and steady over the last three years. This reinforces my view that projects like this need to be long term, so we can establish meaningful relationships and integrate fully into the local landscape. It’s been really hard work and at times immensely frustrating but it’s great to know that it is working.

The One Service was set up to be a seven year project and that is what we all signed up for, so it could evolve and improve further over time. It is a big personal disappointment that it was brought to a close two years early and it is a decision that clients and stakeholders are also struggling to accept. The team will however do our best for the remainder of Cohort 2 and use the learning to date to continue to improve. Thanks for everyone’s support!!

Entry by Janette Powell, Social Finance UK Director of the One Service and the Peterborough Social Impact Bond

Social Finance Responds to Treasury Department RFI

President Obama’s FY2014 Budget included a provision for a one-time, mandatory appropriation of $300 million earmarked for a Pay for Success (PFS) Incentive Fund (IF). The Fund would “encourage innovation and accelerate the use of evidence-based approaches by lowering the risk associated with initial investments.”[1]  Through the IF, the federal government can catalyze the PFS/Social Impact Bond (SIB) market, which seeks to drive investment capital towards evidenced-based interventions and allow all levels of government to save taxpayer money when purchasing positive social outcomes.

In order to guide the Administration’s thinking, the U.S. Department of the Treasury and an interagency PFS working group released a Request for Information (RFI). Specifically, the RFI asks respondents to identify the “best use of the authority…on state, local and tribal performance-based funding mechanisms.” It also seeks to solicit information about the current PFS marketplace, the potential impact of an IF, and possible advantages to taxpayers.

In our response to the Treasury RFI, Social Finance highlights some initial thoughts regarding the potential catalytic impact of a federal IF:

  • Providing Outcomes Payments and Financing Support: Supplemental outcomes payments and/or financing support from the IF would work to catalyze the state and municipal PFS market. As a PFS beneficiary, there is a strong conceptual argument for the federal government to act as an outcomes payor. Indeed, in September 2013 the US Department of Labor awarded nearly $24 million in PFS grants to New York and Massachusetts, which will be used for outcomes payments for PFS programs. Outcomes payments from the IF could be furnished based on two rationales. First, the economics of a project may only work if budgetary savings at multiple levels of government are taken into account. Consequently, the IF may provide supplemental outcomes payments tied to federal budgetary savings that results from a SIB. Second, many states embark on PFS procurements as a way to bank budgetary savings while producing positive social outcomes. Consequently, they may be hesitant to pay for savings outside the timeframe of a PFS contract or for “societal value” not directly accruing to budgetary bottom-lines. This means that certain evidence-backed interventions could be frozen out, producing a net societal/budgetary loss. The IF could take a more expansive view, providing top-up funds that would more accurately reflect the entire suite of public sector benefits generated from a given intervention.

Alternatively, the IF could be tapped to provide financing support, including credit enhancements and/or subordinated loans, to drive the PFS market forward. The federal government is already involved in providing similar types of financing support, if not in the PFS sphere. (One Small Business Administration (SBA) program, for example, guarantees up to 85% of commercial loans to small businesses.) In a PFS project, especially at this early stage, mainstream impact investors have indicated they are generally more concerned with protection of principal than with maximizing return—making federal principal protection (in whole or part) a valuable lure. In the first US SIB, Bloomberg Philanthropies furnished a $7.2 million grant, guaranteeing a large portion of potential losses by the investor, Goldman Sachs. The IF could play a similar role to help attract investors to other PFS projects.

  • Allaying Appropriations Risk: Appropriations risk, the risk that state and local governments will not provide money in future years for outcome payments under a PFS contract, is daunting to many potential investors. In most governments, appropriated funds must be spent within the current fiscal year. However, PFS contracts can range anywhere from 3 to 8+ years – and thus far, only Massachusetts has enacted legislation to mitigate this risk. IF monies could be deployed to address this issue through one of two mechanisms: 1) The IF could be used to incentivize the passage of legislation in other states that is similar to the Massachusetts model; and/or 2) The IF could be used to provide some form of limited insurance for investors against appropriations failure in selected states.
  • Looking Abroad for Inspiration: PFS transactions are being actively considered or carried out across the globe, from Canada to Australia. In particular, the United Kingdom example may provide some insight into how a federal-level fund may be deployed to grow the US PFS marketplace:
    • The UK is considering a range of accommodative PFS policies—addressing tax relief for social enterprise investments, streamlining contracting through the “Red Tape Challenge,” and updating a Financial Services Bill;
    • The Centre for Social Impact Bonds was developed as a central SIB authority. It maintains a “Knowledge Box” in order to aggregate information. Additionally, its associated “Social Outcomes Fund” tops up outcomes payments for promising projects that generate societal value in addition to budgetary savings;
    • The £10 million “Investment and Contract Readiness Fund,” which is managed on behalf of the Office for Civil Society, supports social ventures “to build their capacity to be able to receive investment and bid for public service contracts;”[2]
    • Launched in April 2012 with up to £600 million in capital, Big Society Capital (BSC) is a financial institution focused on social investment. Its goal is to “improve access to finance for social sector organizations and …raise investor awareness of investment opportunities that provide a social as well as a financial return.”[3] Using the 2008 “Dormant Bank and Building Society Accounts Act,” the UK government pledged to seed BSC with “every penny of dormant bank and building society money,” giving it access to £400 million;
    • The Big Lottery Fund (BIG) distributes 40% of all monies raised “for good causes” by the UK National Lottery.[4] It also distributes non-Lottery funding on behalf of public entities such as the Department for Education and the Office for Civil Society. BIG assisted in the creation of the “Social Outcomes Fund,” while also authorizing the Commissioning Better Outcomes fund. Both are aimed at national PFS development.

These entities and initiatives represent a concerted commitment by the UK government to support PFS. The US federal fund may amplify its impact by following the example of the UK’s central government PFS strategy.

In sum, the PFS sphere represents an exciting opportunity for mobilizing investment capital to drive positive social change and to ensure that governments are only paying for verifiable outcomes. However, budgetary and capacity shortfalls may constrain state and municipal governments in their PFS vision, limiting the field to rigorously proven interventions that generate budgetary savings within a short timeframe. A federal IF can drive this nascent market forward, build state capacity, allay investor risk, and experiment in novel areas of social policy. These objectives would help move the US toward more comprehensive, outcomes-based social service provision.

Entry by Daniel Rubin, Analyst


[1] “The Budget for Fiscal Year 2014: Department of the Treasury,” The White House, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/treasury.pdf.

[2] “Investment and Contract Readiness Fund,” The SIB Group, http://www.sibgroup.org.uk/beinvestmentready/.

[3] “About Us: Big Society Capital is the World’s First Social Investment Wholesaler,” Big Society Capital: Transforming Social Investment, http://www.bigsocietycapital.com/about-us.

[4] “About BIG,” Big Lottery Fund: UK, http://www.nof.org.uk/about-big.