tbli conference™ nordic 2014 - philanthropy investing - arthur wood - total impact advisors

Social Yield Notes:An Outcome Based Funding Mechanism for EducationJuly 18, 2014

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! FOUNDATION CORE !OUTCOME MODELS SIBs, DIB’s & SYN’s

Multi Trillion; $1 Trillion > MRI !

DEVELOPING WORLD PENSION FUNDS Now $2.3 Trillion

$17.4 Trillion in 2050

IMPACT INVESTMENT v.2 Multi Billion Models

!GOVERNMENT

TOP DOWN AID $135BN > INJECT IMPACT MODELS !

FOUNDATIONS $45bn > PRI – 2% TO? PRI CODES REVISED !

REMITTANCES $175bn REGULATION/ TECH

SRI INVESTMENT $10 Trillion !

VENTURE CAPITAL & PE IMPACT INVESTING v.1

$500bn in ten years !GOVERNMENT

DEVELOPMENT FINANCE $45bn

GRANT & AID (NFP)

THE PROFITABLE “NEW” BLENDED OPPORTUNITIES

FOR PROFITLOWER RISK?

Sources : TIA, Hudson Institute, McKinsey, AMF, WHO,WSP

OPPORTUNITY FOR NORWAY ?If We Move to Impact Investing v.2 - Beyond PE And Venture Philanthropy

Copyright © 2014 Accenture All rights reserved.

The Old paradigm will fail - New actors are clearly needed to bridge the funding gap in global education

• International aid to education is declining and many governments are simply not able to provide funds for a good quality education to all their young people.

• Overcoming funding gap in education will require more capital than philanthropy and public resources can provide

• Fragmentation of Bilateral Aid models incentivisng a lack of collaboration and scale

• While advocacy to secure funding for education is required, new sources of capital are clearly needed to bridge the funding gap in global education

3Source: Investment in Global Education: A Strategic Business Imperative, a 2013 report compiled by Accenture Development Partnerships, the Center for Universal Education at Brookings, and Total Impact Advisors


Education is a fundamental building block for human development and poverty reduction

“Education is a major driving force for human development” – United Nations Secretary-General BAN Ki-moon, Sept ‘12

❖ 0.37 percentage points increase in the avg. 40 year growth rate in GDP from each additional year of schooling – this equates to a boost of more that 10% considering that the world economic growth rate has been around 2-3% of GDP annually since WWII1

❖ A country able to attain literacy scores 1% higher than the international average will achieve 2.5% rise in labor productivity and 1.5% rise GDP per capita than those of other countries2

❖ It is estimated that every US$1 spent on a person’s education, yields US$10-15 in economic growth over that person’s working lifetime3

❖ 171 million people could be lifted out of poverty if all students in poor countries had basic reading skills3

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Source: 1. Education and Economic Growth, Hanushek, E., et al.; Education Next, Spring 2008, Vol 8. No. 2 2. OECD, Education at a Glance, 2006, p. 155 3. UNESCO: Education for All Global Monitoring Report Youth and Skills: Putting Education to Work, 2012


Yet…

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Access to quality education remains a gap…• 57 million primary-aged children are out of school • 250 million children cannot read, write or count well • 200 million young people leave school without the skills they need to thrive, contribute

in society and find jobs • About 71 million teenagers are not attending secondary school, missing out on vital

skills for future employment. • 300 million kids attend schools which do not have access to electricity !

OR WE CAN LOOK AT IT AS A BUSNESS OPPORTUNITY …..

Source: UNESCO: Education for All Global Monitoring Report Youth and Skills: Putting Education to Work, 2012

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Future Economic Value of TalentUsing data from a typical Private Sector organization in India, our research has shown that investments in education yield significant future benefits.

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Costs and Revenues Generated Total (NPV)

NPV of total investment in education* (At start of education)

$10,543

NPV of total value returned to the business^ (20th

$530,999

Value generated to business in the 20th

education

$53

Every $1 invested at the start of education returns about USD 53 at start of employment

Notes: *NPV computed on investment in education from age 3 to 21 years of the person. NPV computed in age 3. ^NPV computed on value to business from age 22 to 64 of the person. NPV computed in age 22.


Initial findings: Return on Investment across industries from investments in EducationUsing a cross-industry group of nine Indian corporations, we have analyzed the return on investment in education to the business in the form of value

generated and costs averted.

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Cross-industry average: 42%

Our initial findings show that investments in education return approximately 42% annually.

Note: Annual returns shown use Internal Rate of Return (IRR) calculation. Analysis using a sample of firms from the Bombay Stock Exchange; figures publicly reported for FY 20121. Education costs include 2010 public education expenditures2 and average family-paid costs reported in 2008 adjusted for annual inflation3.

Sources: 1.FY12 company financial statements via Business Week 2. EFA Global Monitoring Report 2012 3. Indian Ministry of Statistics and Programme Implementation, 2008

Consumer Goods

Fin Services

Information Technology

Capital Goods

Energy

Telecom

Power

Metals & Mining

Automotive

0% 15% 30% 45% 60%


Quantification of benefits to the Private Sector with a ‘Value Chain of Talent’ approach

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Age of the Individual

0 5 18 22 65

Benefits

Costs

•Pre-natal healthcare* This is a non-exhaustive list of costs and benefits

Early investments in education yield greater benefits to the business throughout the individual’s career

Strategic Growth Drivers

Manage Talent Management Costs

Maximize Revenue by Securing ‘Skilled’ Talent

Indicates Benefits to business

Indicates Educational costs

Educational Costs Early Childhood Education Primary Education Secondary Education Tertiary Education !


Social Yield Notes:A cash flow tied to the achievement of social objectivesSocial Yield Notes:

• Is a marriage of three existing instruments – a legal hybrid company structure (for eg. L3C in the US), a Social Impact Bond / Development Impact Bond together with a long standing capital market structure (Liquid Yield Option Note).

• Hardwires social mission and interests of social stakeholders into the vehicle via company law through its legal structure (e.g., the LLC married to Program Related Investment);

• Allows different players to take different economic social return from the same structure with reference to a base benchmark based on the financial return noted above;

• Offers legal flexibility and ring-fences risk to offer investor confidence and certainty; and

• Creates a liquid secondary tradable instrument for social value.

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Why do SYN have potential for success

• Provide replicable outcome-based model that provides different levels of return to different investors.

• Alligns social and commercial investors with different financial return expectations to participate in the same investment vehicle, effectively entering a financial partnership based on complementary, if not common, social impact motives and objectives.

• In the event of marginal or poor economic performance albeit with social impact, the social investor(s) can alter the structure of the investment into a grant or lower the cost of capital for the entity.

!The potential for investors to shift between a purely philanthropic return and a commercial

return opens up the $1 trillion global Mission Related Investment (MRI) market, in which investment officers have a fiduciary responsibility to seek market rate returns.

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Benefits of a Social Yield Notes over a Social Impact Bond/Development Impact Bond

• Creates equity which trades as a function of the achievement of the social metric

• Triggers different risks/returns to different players (even status quo detractors) upon achievement of the social metric

• Creates a collaborative vehicle for multi-stakeholder outcome models to the benefit of the Social Sector

• Can be applied to any social issue • Allows creation of standardized “social” portfolios – accessing

‘mission related investment’

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Social Yield Notes:


Social Yield Notes Structure

Investors (e.g. Private Investors, Foundations,

Corporations)

Implementer (e.g. Private Bank, Social Sector Org or A

Hybrid Partnership)

Work with Target Population

Solution Providers (e.g. NGOs, Social Enterprises,

Corporation)

Pay returns based on level of contractual

outcome achieved by the partners

Make contingent payment

Contingent Payer (e.g. Government, Traditional Donor,

Private Investor)

Fund most qualified solution provider

Create partnership of selected solution

providers

Issue SYN based ability to achieve future benefits

Independent verification of

outcomes

Stock Market

Trade SYN

Illustrative


Q& A !Lets Collaborate for this initiative- This initiative has the potential to be a game changer in development finance for global education and could set the standards for creating platforms for collective action to unleash private capital needed to implement scalable and sustainable solutions to address social problems across sectors beyond education.

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tbli conference™ nordic 2014 - philanthropy investing - arthur wood - total impact advisors

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