Although none exist in Canada at the moment, there’s been lots of interest by the country’s governments to create, or at least explore the possibilities of, social impact bonds (SIBs). But what do investors think about them?
To find out, the MaRS Centre for Impact Investing and Deloitte surveyed 80 potential SIB investors, including foundations, philanthropic organizations, individuals, banks, wealth managers, cooperatives, venture capitalists, and family offices.
Familiarity with SIBs
The results show that 90 percent of respondents “were familiar to some degree with SIBs”. Some understand the overall premise of SIBs, not the details, while others were well-versed on the tool. What investors like most about SIBs, besides social impact, is that investments are tied to outcomes achieved, such as better health. They also responded favourably to the fact that SIBs are tied to preventative measures rather than remedial ones.
How much would Canadians invest?
Although investment amounts will depend on the specifics in each SIB, many respondents said they would be willing to invest at least $1 million in a single contract. Taken together, up to $40 million is available for investment in SIBs by the respondents in the survey, which gives an idea of the potential size of capital available in the Canadian market. Many respondents also said they were open to investing at the regional, provincial, and national levels.
How to use SIBs?
Canadian investors seem to want to use SIBs to tackle housing/homelessness, unemployment and/or skills training, education, and health. The demographic groups they want to help are Aboriginal people, children, and youth.
The challenges with implementing SIBs
Respondents cited the biggest barriers to the development of SIBs are collaborating with government, risk and the perception of risk, liquidity, and capacity/level of market or public education.
Investors see potential challenges working with governments to structure and implement an SIB. They feel governments need to play a key role in catalyzing the SIB market, and want to see governments demonstrate a long-term commitment to SIBs.
In terms of risk, investors would like to see arrangements of first-loss capital, principal guarantees, or multi-layer investing to minimize exposure to risk, at least for initial projects in Canada because of the “newness of the model” and “lack of execution standards”.
Overall, what the survey found was that there is capital for SIBs in Canada. Investors mentioned the preference for a market rate of return, capital guarantee, and term in the range of four to 10 years. Finally, they would like to conduct SIB deals through an intermediary.
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