Investing in society
Bonds helping the needy
The launch of the mental health social bond this week, marked the birth of a new investment asset class in New Zealand which could one day appear in your KiwiSaver.
In Australia, the UK, the US, and now New Zealand, a great social bond experiment is underway in which governments seek capital from investors to fund ‘‘innovative’’ programmes to tackle some of society’s most intractable problems.
Investors get a return on their money that depends on whether the programmes they fund hit their targets, which in the case of the New Zealand bond is getting South Auckland beneficiaries with mental illness into jobs.
Daniel Madhavan from not-forprofit Impact Investing Australia, says some Australian super funds already invest in what are broadly dubbed ‘‘social impact bonds’’, and he sees no reason why KiwiSaver would not one day follow suit.
One high-profile example is Christian Super, which invests with faith-based values, he says.
Social bonds have been dubbed by the political left as a social experiment and welfare privatisation, and lauded by the right as a new way of improving the lives of some of society’s most underprivileged.
They represent governments trying to harness the profit-motive to do good.
Investors sinking money into social impact bonds are paid a return by the government, if the programme they have funded meets the targets agreed with the Government.
In the case of New Zealand’s first social bond, $1.5million has been raised to fund Australian company APM Workcare, to ‘‘help’’ around 1700 people from South Auckland with mental illness into work.
As mental health disproportionately affects Maori and Pacific Island people, it’s a very sensitive place to start the New Zealand social bond programme.
Madhavan said the nature of social bonds is they generally involve vulnerable people.
He gives the example of the New South Wales Benevolent Society Social Benefit Bonds, which were launched in 2013 to fund an ‘‘intensive family support program’’ to help keep children with their families, and out of foster care.
There are two bond classes in the New Zealand launch: The A class bondholders take less risk, and hope for a return of 7 per cent a year, but depending on hitting targets, it could be as low as 3 per cent.
The B class bondholders are subordinated, and are hoping for returns of up to 13 per cent a year, but again, it could be lower, as low as -19 per cent.
The investors include the notfor-profit Wilberforce Foundation, but also the private Prospect Investment Management Limited investment fund.
The programme will last for five years.
The target is to get 43 per cent of people it deals with into work, compared with a success rate of 30 per cent in other contracts the government currently has in operation.
Finance minister Steven Joyce, said the bond was designed to ‘‘achieve a result... demonstrably better than what has been previously achieved with the old way of doing things.’’
It’s already got a second bond planned, focused on reducing youth reoffending in Auckland, mirroring bonds overeas, including the Ryker’s Island bond, the first social impact ever issued, which was funded by Wall Street giant Goldman Sachs, and was deemed a failure.
Madhavan says: ‘‘We have enough data to say some of them have worked, and some of them have not worked.’’
They represent governments trying to harness the profitmotive to do good.