New Zealand is launching its first $1.5 million social impact bond to benefit mental illness. Purpose-driven investors will get a return when certain outcomes are reached, which in the case of the New Zealand bond is getting over 40% of South Auckland beneficiaries with mental illness, up to 1,700 people over the 72-month duration of the bond, into jobs.
The new social bond is not without controversy however. At least one politician, Annette King representing the country’s Labour Party, says it is a “disaster in the making.”
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“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 of New Zealand’s social impact bond include the not-for-profit Wilberforce Foundation, but also the private Prospect Investment Management Limited investment fund.
There are two bond classes in the New Zealand launch: A class and B class. The A class bondholders are taking less risk, and hope for a return of 7% a year, but depending on hitting targets it could be as low as 3%, while the B class bondholders are subordinated, and are hoping for returns of up to 13% a year.
The social impact target is to get 43% of people it deals with into work, compared with a success rate of 30% in other contracts the government currently has in operation.
Finance minister Steven Joyce said the mental health bond was designed to “achieve a result… which is demonstrably better than what has been previously achieved with the old way of doing things.”
The next social bond New Zealand’s government hopes to launch will focus on reducing youth reoffending in Auckland, mirroring social bond issues in the UK and the US, including New York’s Ryker’s Island bond, the first social impact ever issued, which was funded by Wall Street giant Goldman Sachs, but which was deemed a failure.“
Source: Stuff Co New Zealand
