Mixing private investment with social services is controversial but experts say a social-impact bond programme that began six years ago should now serve as a blueprint
A controversial social bond programme to tackle youth offending is soon to wrap up, despite initial indications it has been a success.
The bond was issued six years ago to fund the operations of Genesis Youth Trust, an Auckland-based charity working with youth offenders.
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G-Fund chair Carl Bakker, who worked on setting up the bond for the Government but now works on the trust side, said overall it had been successful.
"It has fully met its financial targets … so basically it's been very successful with its reoffending achievement.”
Preliminary data shows reoffending rates split between high-risk and medium-risk offenders.
Almost half of all offenders did not reoffend two years after starting the Genesis programme.
By contrast, before Genesis started the bond programme its reoffending rate was about 75 percent, which is on par with historical data for other intervention programmes where the risk-profiles were similar.
For high-risk youth, just over a third did not reoffend, and for medium-risk youth that figure was about 55 percent.
Bakker said having an investment lens over the trust’s operations helped it achieve better outcomes than it otherwise would have.
“Because we had investors involved, private sector, we also had a mechanism where they came along to G-Fund board meetings and could look at performance, and there were a bundle of quite valuable perspectives, as you'd expect from the private sector concerned about the money.
“So there's quite a sharp focus on what was really going on, a demand for data and commercial judgments, which is –this is not working … for example on social worker pay rates, so asking do we have to pay more for social workers because their contribution to the programme will outweigh any costs.
“So that commercial judgment around making trade-offs and changes is brought to bear in a very useful way.”
‘I think there's a huge amount of learning there about how to run this sort of social investment but I think there’s certainly a whole lot of learning about how to support NGOs to be really innovative in how they are thinking about their work … so we'd love to see a programme like this scaled out.’ – Paul Stephenson, Synergia
G-Fund sits within Genesis Youth Trust but was set up solely to manage the bond and is the contracting party. The trust is a hybrid organisation made up of a small number of police staff but mostly trust personnel.
The trust offers a wraparound service for first time and serious repeat offenders, referred by the police and Oranga Tamariki. The services include social work, youth mentoring, and family and counselling services.
Five organisations, including the Superannuation Fund, invested in the $6 million bond, which is expected to deliver a 6-10 percent return.
The programme was set up to deliver for 1000 young people, but only got through 607. This was, in part, because of the pandemic and ongoing restrictions in Auckland.
Bakker said because the programme was set up with funding in place over six years it helped its success, rather than it being reliant on the budget cycle or grant funding as other similar initiatives can be.
"Any non-profit that gets a five or six year contract, it's almost unheard of, particularly from government. And because the knowledge of the flows and the investment horizon, the organisation could invest in more significant data systems and data-lead decision making.”
Synergia partner Paul Stephenson was also involved in the design of the bond and said the focus on outputs rather than inputs was critical.
“One of the things the bond tried to do was focus on really trying to understand if we were making a difference because quite often in government contracting they pay for contracts based around how many employees or how many people you see.
"Whereas this is going to the next step and really trying to understand whether this intervention was making a difference.”
He said it was important there was now a blueprint for future social impact bonds.
“I think there's a huge amount of learning there about how to run this sort of social investment but I think there’s certainly a whole lot of learning about how to support NGOs to be really innovative in how they are thinking about their work … so we'd love to see a programme like this scaled out.”
The bond’s term officially finishes at the end of August. Investors are expected to receive a decent payout, which comes from the Government because the targets have been met.
However, a new bond being issued seemed unlikely.
Bakker said there was “no appetite” from government for it.
“Not for anything as complicated as the outcome-based social impact bond.
"Genesis and investors would love to do something like this again, and [next time] you wouldn't have such a complex arrangement and you no longer have to have quite the level of uncertainty.”
A review of the programme in 2021 highlighted the contentious ideology of social bonds.
“The perceived negative aspects of social impact investment included moving the accountability for inequalities in society away from the public sector and views that social bonds were unethical as they represented investors making a profit from misfortune.”
Although the review went on to say that though investors did make money in the short term, it was a long-term benefit for government and society if the programmes were successful.
"Reservations of some stakeholders about private investors profiting from social disadvantage could be addressed by considering changes to the model and encouraging philanthropic investors, including iwi.”
A thorough evaluation of the programme is expected to be published once it formally concludes in August.
