An innovative form of social impact bond has been launched by Melbourne City Mission (MCM) that will leverage impact funding from a range of leading foundations. It will fund a unique education program aimed at re-engaging young people, who are experiencing mental health issues, with employment opportunities.
Living Learning is an ‘outcomes-based contract’ that has the support of the Victorian Government and will be delivered by MCM’s independent school, the Hester Hornbrook Academy. It will help 144 young people, aged 15-22, to find a way back into the workforce, gain confidence and empowerment, while also becoming less dependent on government health services.
Russ Wood from Latitude Network explains that it’s as much about the structure of the program, as it is about the inputs, “It’s a more curated support package. It’s often not so much about the resources you don’t have, but making the resources you’ve got more tailored. And this structure allows Hester Hornbrook to shift resources and adapt them to the unique needs of the cohort.”
The model will be a flexible secondary school education program that is uniquely designed to help those suffering from ongoing mental health issues. Each cohort will be in the program for 2 years, with 3 cohorts moving through the program over 5 years.
“The mainstream education system is fine for 60 – 70% of the population. Typically, kids around the middle do well in the public education system, but it’s kids at the top end and the bottom in that struggle. Anything large scale is no good at the margins, it’s no good at the edges, so we need more options.” Russ says.
Innovative Investment Structure
The investment structure is novel, and it’s hoped it will become a model for future initiatives. It’s designed to appeal to foundations who are looking for ways to deploy their ‘investable’ funds, their corpus, towards high-impact projects.
The standard model for charities and foundations is to invest their capital (usually sourced from donations) into mainstream financial markets that offer a low-risk profile. They then use the returns from the investments to make grants, thus protecting their corpus and maintaining their longevity.
But ideally, this corpus of funds (this investable capital) can also be leveraged as an impact investment, to contribute to the positive social mission of the organisation. A social impact bond is an ideal vehicle.
For the Living Learning project, Latitude Network is the lead impact advisor, while SEFA has assisted with investment advisory during the capital raise, which saw $4 million raised from 5 foundations: Gandel Philanthropy, Helen Macpherson Smith Trust, Lord Mayors Charitable Foundation, Paul Ramsay Foundation and The Ross Trust.
The foundations will see their investment deployed in two tranches, the first tranche is a commercial investment attracting a positive return, if the social impact outcomes are achieved, and this will come from their corpus. While the other tranche is an at-risk allocation that will be in the form of a forgivable loan, or straight grant. This will come from their grant allocation, and will cover any losses should the program results fall below target.
“In this instance we’ve come very close to matching the mindset of an Investment Committee through offering commercial returns, with a low risk profile.” says Hanna Ebeling, from SEFA. “We specifically wanted the commercial tranche to be available to foundations, because in previous transactions, it was the foundations taking up the at-risk portion, either through straight grants, guarantees or forgivable loans. But there were other investors who took the commercial portion. So for us it’s really important to encourage more foundations to become engaged. And I rarely use this term, but I think it is the best-of-both-worlds because it leverages foundations’ ability to invest in impact through the corpus and granting arm.”
Like all impact investments, the model depends on precise impact measurement to assess outcomes. However, with an SIB, reaching the impact targets is even more critical as it’s the trigger for earning a positive return. The stakes are not only high for ensuring the increased well-being of beneficiaries, but they’re also high in terms of the returns pushing into the black.
Russ Wood, and the team at Latitude Network, worked on the impact measurement structure. The key outcome measured is the reduction in dependence of acute health services, with this being recognised as a proxy for broader improvements in wellbeing.
The task initially is to identify the particular intervention that successfully shifted a similar cohort away from service dependence, and away from the negative factors that tend to go along with it.
“We give organisations the confidence to know that they can identify a cohort, to collect data and measure the right things, so that they can then actually see that they’ve changed the trajectory. This then gives organisations the power to go and negotiate with government, and they can go to investors, and they can say we’ve identified the interventions, and we can drive more of that positive shift.” Russ says. “So the point is to find a number that is representative, but which everyone can have some confidence is actually representative based on a historical proof.”
The Living Learning program was launched on Wednesday, 28 April, at the Hester Hornbrook Academy in Sunshine in Melbourne’s west.