Thursday, July 16, 2015

So Much For Social Impact Bonds

This one anyway.

We noted this chimera* in June 15, 2014's "Social Impact Bonds: If They're Good Enough For Goldman Sachs...":
I'm not sold on the idea, being more of a John Wesley, "Earn all you can, Save all you can, Give all you can" kind of guy, but who am I to judge those who claim to do "God's Work"?
From the Chronicle of Philanthropy:
 Study Offers Advice on Setting Up Social-Impact Bond...
...Here are a couple Goldmanites writing for the Federal Reserve Bank of San Francisco:
Rikers Island: The First Social Impact Bond in the United States
(5 page PDF)
Here's Goldman CEO Lloyd Blankfein back in November 2009 having been bailed out by both Warren Buffett and the U.S. Treasury via the AIG no-haircut payoffs:
Goldman Sachs’ Blankfein on Banking: ‘Doing God’s Work’  
Here's Wesley's Sermon 50, The Use of Money (1744)
Fast forward 13 months, from Penta:

U.S.’s First Impact Bond A Bust
Just two weeks ago, it was announced that the U.S.’s first social-impact bond — a fixed-income like investment used to finance social good — failed to produce the desired financial and philanthropic returns. As a result, the five year investment was scrapped after three years.

The laudable $7.2 million deal, inked in August 2012, aimed to reduce youth recidivism at New York City’s Rikers Island prison by as much as 20%. Had the program hit this target after five years, the New York City government would have paid out a 4.4% annual return to investor Goldman Sachs. At the same time, it cost New York City nothing to sign off on the intervention, since Goldman Sachs was providing all the upfront capital and returns were to be paid out of savings generated from not sending these individuals back to jail.

Instead, Goldman Sachs took a $1.2 million hit, after former New York City mayor Michael Bloomberg’s family foundation paid out $6 million in “first-loss” capital.
“We’re all disappointed that we weren’t able to have a positive impact on the young people at Rikers, but ultimately the social-impact bond model proved successful by allowing the City to test and collect data on a new approach to recidivism at no cost to taxpayers,” says Andrea Phillips, vice president of Goldman Sachs’ Urban Investment Group, which made the investment. Nearly half of the youth discharged from Rikers Island each year return within 12 months.

Juvenile justice experts are currently crunching the numbers to see what went wrong on the deal, but Penta called up Phillips to learn lessons from the Rikers Island experiment, and how this knowledge might alter the fledgling social-impact bond industry, currently consisting of just seven deals and $80 million invested to date.

Goldman Sachs has invested in four of the seven impact bonds and, including the failed Rikers deal, the bank has committed $30 million to the nascent field. Goldman’s wealthy, philanthropic-minded clients are also in on the action. Such clients have invested in two social-impact bonds. One is a $17 million deal to improve pre-kindergarten literacy in Chicago; the other, similar to the Rikers investment, provides $19.4 million in funding for the Massachusetts-based nonprofit Roca to tackle youth recidivism to the state’s prisons....MORE
*The O.E.D. has a couple definitions of 'chimera' that pretty much cover the impact bond. The first focuses on the fantastical hybrid:
1.1 Any mythical animal with parts taken from various animals.
While the second covers the 'hopefulness' aspect:
A thing that is hoped or wished for but in fact is illusory or impossible to achieve:  
the economic sovereignty you claim to defend is a chimera