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Philanthropic impact investment

5/5/2021

 
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First published in Pro Bono News

The Living Learning program is important, writes Dale Renner, not just because of its social impact on young people, but also because of the way the impact investment is structured. It provides a new way to partner for the delivery of social outcomes.


The Living Learning program was launched last week at the Hester Hornbrook Academy (HHA) in Sunshine in Melbourne’s west. HHA is an independent school run by Melbourne City Mission for young people disengaged from the traditional school system. The program is funded as an impact investment under the Victorian government’s $30 million Partnerships Addressing Disadvantage (or PAD) program (also known as social impact bonds, or SIBs). 

The service innovation which will be tested through the program is a more integrated mental health and flexible secondary school education program for young people whose educational and long-term employment prospects are being affected by ongoing mental health challenges.

The program is important not just because of the social impact on young people, but also because of the way this impact investment is structured. We have worked on a variety of social impact investments in the last few years and have encountered a range of barriers to a wider takeup of social financing mechanisms such as SIBs. They are complex to negotiate given the three parties involved (government, social organisation and investors) and their need to balance a range of risks as well as target measurable financial and social outcomes. SIBs were originally designed to allow socially-minded investors to help fund the upfront costs of social programs where their investment was “at risk”, meaning they would lose some of their investment if the program did not deliver the target outcomes. They were specifically designed with private investors, not philanthropic trusts, in mind.  

Philanthropic trusts operate differently to a traditional impact investor. 
Philanthropic trusts and foundations usually have a corpus of funds built from an original or historic donation invested in “safe” market investments so that the interest earned on those investments can be given away as grants. For an overly simplified example, if your corpus is $10 million and you earn 5 per cent per annum from your investments, you can give away $500,000 (less expenses) per year and keep the trust going “in perpetuity”’. A more modern way of thinking about the granting side is that, it too is an investment but the return is in social outcomes rather than in financial returns. This means each alternative use of grant money should be compared to the level of outcome it achieves compared with the next best use of that money.

As a result, the amount of money that philanthropic trusts and foundations give away each year is tiny compared with the amount that is locked away in their corpus. People in the social impact space have been thinking for years about how to unlock this corpus for investing in impact directly. The social finance innovation that enables the Living Learning project represents one way we can now unlock that corpus to be used for specific types of social impact investment projects. This is a “philanthropic impact investment” (PII) model, as distinct from the more common impact investing model which tends to focus on investors that may not be philanthropic trusts.

Why is it difficult for some philanthropic trusts to use the corpus for social impact investing? 
The problem is that social investments are competing against asset classes that are very well known – whether listed companies, property or, increasingly, renewable energy investments. Social impact investments are newer and far more variable (a SIB service model and program logic is usually an innovation that is unique or new to the sector), so it is harder for an investor to assess the risk of an investment in such a project compared to those in well-known assets. As a result, the understandably conservative investment strategies employed by trusts and foundations mean these newer and more complex social investments are passed over. 

The new PII approach developed for the Living Learning program enables a trust or foundation to combine both its corpus and its grant funding in the same investment through a “split tranche” structure. The investment generates a return if the project achieves its social outcome goals while the grant portion is called upon to cover the loss if the program fails to achieve the target social outcomes.

Latitude Network with Social Enterprise Finance Australia (Sefa) and Melbourne City Mission worked together with the Victorian government to ensure this model suited the program and complied with all legal and government requirements. This approach has the potential to make it easier for social service organisations to develop high impact social programs that attract impact investment from their philanthropic partners.

Benefits of the new split tranche structure 
One of the benefits of this new structure is that it leverages and deepens the natural relationship between philanthropy and the social sector and allows philanthropists to use part of their large capital base to help unlock funding from the government for worthy programs. Philanthropic trusts can use their dual ability to invest capital, but also to provide grants that enable them to reduce the internal risk of these investments and provide the working capital that outcomes based contracts require. 

This is useful because outcomes-based contracts are powerful tools to drive higher accountability for social impact. One of the core public benefits that we at Latitude Network have witnessed in organisations that undertake outcomes contracts (such as SIBs or PII projects) is that the focus on outcomes and the rigour of the contracting and financial structure create strong incentives to achieve social outcomes. This in turn leads to stronger use of data and performance systems that drive continuous improvement in programs. Well-designed outcomes contracts align financial and mission-based incentives to deliver high performing social programs.

While SIBs have been important vehicles for helping the social sector develop new tools and skills for achieving outcomes, they are very complex to develop and negotiate and are not suitable for all forms of social service funding. Government, philanthropy and the social sector need to continue to find new and lower-cost ways of contracting for the delivery of social outcomes. The PII structure developed for Living Learning is an example of a new way to partner for delivery of social outcomes.

launch of mcm social impact investment

26/10/2020

 
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Social Impact Bonds, Education, Mental Health, Impact Investment 
Australia's first education & mental health social impact bond launched today 

Melbourne City Mission has signed Victoria's third Social Impact Bond focusing on young people disengaged from school.
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Latitude Network congratulates Melbourne City Mission (MCM) on the announcement of its Partnership Addressing Disadvantage (PAD) contract with the Victorian State Government known as the ‘Living Learning’ program. 
 
Latitude Network supported MCM in its initial PAD application and throughout the negotiation with Government, providing advice and technical assistance across service design, financial model, negotiation and data use. We are now working with MCM to develop a live data and performance system set up to help them achieve their outcomes targets.
 
‘Living Learning’ is a new, targeted program which addresses barriers for young people who are disengaged from school and living with mental illness. MCM developed the program using its expertise in re-engaging with, and supporting, young people through their independent school, the Hester Hornbrook Academy. 
 
As lead advisors to MCM throughout the journey, we are excited to see the program announced and young people able to start entering the program from today.
 
Latitude Network was also pleased to work with leading Australian social finance experts, Sefa, who provided advice on blended capital structuring options, targeting foundation investors using their corpus and granting arm.

Innovative financing structure: Watch this space

We can’t yet share the details of the innovative financial structure behind Living Learning. Sign up to our newsletter so we can let you know those details as soon as they are available. 
 
At a future date we will also be running a Webinar with Sefa in collaboration with Pro Bono News to talk through the details of the investment structure. Keep an eye out for the invitation.

Key elements of the program

Key program elements include - 
  • ​144 participants aged 15 to 21 across Melbourne;
  • Three-year program through MCM's independent school, the Hester Hornbrook Academy which has specialised campuses across Melbourne;
  • Education and support for young people who are disengaged from employment, education and training and who have a mental health condition; and
  • Part of the State Government's Partnerships Addressing Disadvantage social impact investment program.

​See the Victorian Government's Press Release here.

Melbourne city mission: Lessons from the pad

2/4/2019

 
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Guest Blog: Dave Wells
Dave is General Manager Innovation Impact and Government Affairs at Melbourne City Mission
  
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Melbourne City Mission was one of two successful applicants for the Victorian Government’s latest outcomes-based funding round known as ‘Partnerships Addressing Disadvantage’ (PAD). With negotiations currently underway, the PAD is allowing the team to co-design a tight, appropriately-resourced service response for a cohort of young people that our system has lost – 15-21 year-olds who are not in employment, education and training, and who struggle with their mental health.
 
Along with Russ Wood and Dale Renner of Latitude Network, we’ve thrown ourselves into the experience. And while it has been a steep learning curve, we are now convinced that outcomes-based investment is a vitally important approach for two key reasons:
 
True collaboration
 Firstly, community services has long boasted that its work is based on partnerships and that community development works best when in partnership. And while we think that is true, the PAD is bringing new and exciting players into the partnership who have more than just money to contribute. The government departments are genuinely around the table to problem solve and overcome barriers – this is a first in my experience. Intermediaries (like Latitude Network) provide invaluable advice and analysis to help us design the best solution and rapidly respond to the weekly challenges we all need to resolve. Financial advisors and institutions give frank advice on what kinds of projects are investable, with an eye to getting the project funded as a partner, not just an arm’s length business deal.  Within our own organisation, our project teams and finance staff are having new discussions about what the best solution is and how to structure it for funding. Each partner brings a different perspective and works together toward a common goal. It’s liberating and empowering.
 
Deeper service design
Second is the incredible focus the MCM team now has on the service response. Due to the importance of getting the program design right (or more accurately the financial consequences of getting it wrong) we are focusing on every single element of the program to make sure that it will contribute to the outcomes – without exception.  MCM is being precise and tireless in understanding what activities work and in what ‘dosage’. The focus on outcomes gives our program logic and program design process real teeth – driven by evidence and data. The next step is to build an organic innovation process that, in addition to government and providers, gives investors, wider community and clients greater ongoing contribution to improving the design and impact of our programs.
 
While outcomes-based funding approaches are not suited to every project or every cohort, we recognise the vital role they will play in the future of community services delivery. MCM also recognises the disciplines developed through the negotiation and design phase will enhance the organisation more widely and are transferable to other programs, funding models and organisational tasks (with the obvious parallel being the development of an outcomes measurement framework across other program areas). MCM is greatly benefiting from being a part of the early growth of outcomes-based funding models.

Hester Hornbrook Academy

Partnerships addressing disadvantage

2/7/2018

 
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The ‘artist formerly known as a Social Impact Bond’ is back. And with a new name.
The Victorian State Government has just announced its second formal round of outcomes-based funding opportunities. And, regardless of name – these are serious opportunities to co-design fully-funded investments into service interventions that really work to close gaps for cohorts of disadvantaged Victorians.
 
The Government’s Statement of Intent, issued Friday 29 June 2018, is critical reading. It indicates that the Department of Treasury & Finance wants proposals from those who work in the following policy areas:
  • Vulnerable children aged 5–14 (or school years 1–10); or
  • Disengaged youth aged 15–25 (youth who have left school early and are not engaged in training or in the labour force located within a geographic area associated with social and economic disadvantage).
 
Just as with the first round of opportunities that delivered two contracts – one through Sacred Heart Mission and the other through Anglicare/VincentCare, to be considered for this round you’ll need to be well prepared.
 
First Principles.
The key things you’ll need to cover in your application are listed here: 


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  • About
    • Our Team
    • Vision
  • Services
    • Research
    • Service Design >
      • Outcomes-based Infrastructure
    • Operations Systems
    • Data & Analytics >
      • Data Partnerships
      • Data Analytics
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    • Impact & Funding >
      • Social impact bonds
  • Cases
    • Toward Home Case Study
    • Wellways Case Study
    • Hello Sunday Morning Case Study
    • Cricket Victoria Case Study
    • Sacred Heart Mission Case Study
  • Insights
  • Contact