hi everyone we live in a time of
remarkable innovation and wealth
creation real GDP per capita in the
United States has tripled in the last 50
years the portion of the world living in
extreme poverty has plummeted child
literacy is up so is life expectancy
from alternative energy to miraculous
new drugs our world is shot through with
technology that even a decade ago seemed
like science fiction but all of this
productivity is matched only by the
enormity of its imbalance I didn’t grow
up in this country I remember watching
the cartoon Popeye as a kid in Hong Kong
and Popeye would eat some spinach his
arms with pop and I’d always wondered
how those skinny legs could support that
big torso the nation that we’ve built is
just like Popeye a heavy top on a
fragile bottom for all our growth
inequality by any measure is widening
and deepening the 25 richest Americans
have more than the combined wealth of
the bottom half of the country and we
face enormous and complex and urgent
social challenges they’re two and a half
million people behind bars half a
million people homeless half a million
kids in the foster care system and 40%
Americans 40% of us can’t come up with
$400 in an emergency these challenges
are mounting but it’s not for a lack of
trying every year our government spends
over a trillion dollars on social
programs from food stamps to
after-school programs from housing
shelters to job training and last year
total US philanthropic giving topped 400
billion dollars it’s not how much we as
a nation spend on these
problems it’s how well we spend it in
his book Moneyball for government Peter
Orszag writes that most government
spending decisions are based on gut
instincts that less than 1% of federal
funding on social programs has any
evidence that are produced results for
our communities 1% and now take the
nonprofit sector the challenges we face
are enormous but the organizations
taking them on are small of the 200,000
Human Service nonprofits founded since
1975 only 200 or 0.1% has reached scale
of over 15 50 million in revenue so even
the best nonprofits have a hard time
accessing the growth capital to meet the
scale of our social challenges and
finally the capital markets unprecedent
amounts of money flow through the global
financial system but none of it is
flowing to address our deeply entrenched
social challenges in a direct way our
world is organized with this kind of
bifurcated world view that the only
purpose of investments is to maximize
financial returns while social
challenges are the jobs of philanthropy
and government alone so what does this
all mean and how do we rethink the
relationship among governments
nonprofits and the capital markets eight
years ago I was about to turn 40
things were good I had built a career in
money management and asset management
management consulting and asset
management and things were going well
and I had even figured out the whole
work-life balance thing and and our kids
were happy I’d been playing the game for
a while and playing it pretty well but
the more I played the more I questioned
the rules of the game and and my place
in it why should we continue to leave
social challenges to just philanthropy
in government and why shouldn’t the
capital markets have a role so I took a
leap and co-founded a nonprofit called
social finance a pretty funky nonprofit
that works to bridge the worlds of
finance policy and social change over
the last eight years our team has been
building a new model to finance social
change at first we called it the social
impact bond importing the concept from
our sister UK company but since it
actually isn’t quite a bond we started
calling it pay for success it’s a
distinct type of impact investment it
makes money by improving the
effectiveness on of how our government
spends taxpayer dollars so remember that
I said that only 1% of federal funding
had any evidence of it being spent
wisely our work is taking aim at the
other 99% so right now when government
decides to fund a social program they
typically contract for outputs or
services on a fee-for-service basis such
as the number of hours and a job
training program or the number of visits
the clinician pay for success flips that
on its head instead of paying for the
number of hours in a job training
program government agrees to pay for how
many people who receive that training
actually get jobs and keep jobs and
instead of paying for doctors visits
governments agree to pay whether people
going through those visits with doctors
actually recover successfully some
substance use so pay for success is a
mechanism that changes the way we fund
social programs so instead of taxpayer
dollars spending money on programs with
uncertain outcomes and hoping that they
work it spends money on outcomes after
they’ve been achieved so how does it
work
nonprofits investors and governments
come together to tackle a social
challenge we jointly decide the outcome
that we
achieve and how we’ll know that we’ve
reached our goal the investors put up
the upfront capital to scale a
particularly promising nonprofit then we
collect a lot of data we track progress
we make adjustments along the way if in
the end an independent third-party
evaluator comes in and determines that
the project has been a success then
government repays those investors
through a performance-based contract and
if not taxpayers are off the hook that’s
where the name paper success comes from
government only paying for measurable
tangible results for our communities and
while that may make common sense is
hardly commonplace let me give you a
particular example and an example that
has special resonance for me as an
immigrant Massachusetts has been running
on near full employment and businesses
are increasingly looking to refugees and
immigrants to fill vacant positions but
these immigrants come to our country
with limited job skills and limited
English skills which puts that
Massachusetts economy it’s sustained
growth at risk so we partnered with the
state and a fantastic nonprofit called
Jewish vocational service forty impact
investors put up over twelve million
dollars investors like prudential
financial foundations individuals and
donor advised funds so that two thousand
more immigrants and refugees can get job
training and english instruction they’ll
get training that will put them into
jobs and banking and nursing and
hospitality good jobs with benefits like
being a bank teller at a global
financial institution or being a nursing
assistant a certified nursing assistant
at a boston teaching hospital success of
the program will be based on three
metrics first successful placement into
jobs second higher earnings over time
and third transitions into higher
education investors will only get repaid
to the extent that these outcomes are
achieved so when an investment is
successful it pays off and everyone
benefits
and if not funders bears the risk
instead of taxpayers there now over a
hundred social impact bonds across 24
countries mobilizing almost half a
billion dollars tackling a range of
social challenges helping care for our
veterans giving kids a healthy start
housing the homeless and reintegrating
ex-offenders into society at a hundred
deals the social impact bond tool
remains small but with great potential
and one that’s emblematic of big ideas
the idea that finance can be a public
spirited responsibility the notion that
great nonprofits and finally have the
kind of capital to scale to meet the
demands of society and the aspiration
that every public dollar is enabling the
pursuit of life liberty and happiness
this work has been super super hard
working across the sector with
colleagues to build the field from
scratch has not been easy in fact it’s
the hardest and the most complex work
that I’ve ever done and it’s far from
perfect and some days I feel like the
more we learn the less we know but I am
optimistic and I’m optimistic about the
future of the field because the tool is
inherently optimistic it works to create
mutual benefit for all parties involved
it is about breaking down old silos and
creating new partnerships it’s about
creating new incentive structures to
hold our governments accountable and
this is about reimagining the role of
the capital markets and it’s
fundamentally about the core belief and
something that I hold so deeply that the
financial markets can advance the common
good and that governments can’t benefit
from the rigor and discipline of markets
so maybe in the end we should go back to
calling it a social impact bond after
all not because it’s a bond but because
it bonds us
it’s a pact that holds all of us
together by pledging accountability to
one another by setting clear goals and
working across sectors we can begin to
make progress together that none of us
alone can make thank you [Applause]
remarkable innovation and wealth
creation real GDP per capita in the
United States has tripled in the last 50
years the portion of the world living in
extreme poverty has plummeted child
literacy is up so is life expectancy
from alternative energy to miraculous
new drugs our world is shot through with
technology that even a decade ago seemed
like science fiction but all of this
productivity is matched only by the
enormity of its imbalance I didn’t grow
up in this country I remember watching
the cartoon Popeye as a kid in Hong Kong
and Popeye would eat some spinach his
arms with pop and I’d always wondered
how those skinny legs could support that
big torso the nation that we’ve built is
just like Popeye a heavy top on a
fragile bottom for all our growth
inequality by any measure is widening
and deepening the 25 richest Americans
have more than the combined wealth of
the bottom half of the country and we
face enormous and complex and urgent
social challenges they’re two and a half
million people behind bars half a
million people homeless half a million
kids in the foster care system and 40%
Americans 40% of us can’t come up with
$400 in an emergency these challenges
are mounting but it’s not for a lack of
trying every year our government spends
over a trillion dollars on social
programs from food stamps to
after-school programs from housing
shelters to job training and last year
total US philanthropic giving topped 400
billion dollars it’s not how much we as
a nation spend on these
problems it’s how well we spend it in
his book Moneyball for government Peter
Orszag writes that most government
spending decisions are based on gut
instincts that less than 1% of federal
funding on social programs has any
evidence that are produced results for
our communities 1% and now take the
nonprofit sector the challenges we face
are enormous but the organizations
taking them on are small of the 200,000
Human Service nonprofits founded since
1975 only 200 or 0.1% has reached scale
of over 15 50 million in revenue so even
the best nonprofits have a hard time
accessing the growth capital to meet the
scale of our social challenges and
finally the capital markets unprecedent
amounts of money flow through the global
financial system but none of it is
flowing to address our deeply entrenched
social challenges in a direct way our
world is organized with this kind of
bifurcated world view that the only
purpose of investments is to maximize
financial returns while social
challenges are the jobs of philanthropy
and government alone so what does this
all mean and how do we rethink the
relationship among governments
nonprofits and the capital markets eight
years ago I was about to turn 40
things were good I had built a career in
money management and asset management
management consulting and asset
management and things were going well
and I had even figured out the whole
work-life balance thing and and our kids
were happy I’d been playing the game for
a while and playing it pretty well but
the more I played the more I questioned
the rules of the game and and my place
in it why should we continue to leave
social challenges to just philanthropy
in government and why shouldn’t the
capital markets have a role so I took a
leap and co-founded a nonprofit called
social finance a pretty funky nonprofit
that works to bridge the worlds of
finance policy and social change over
the last eight years our team has been
building a new model to finance social
change at first we called it the social
impact bond importing the concept from
our sister UK company but since it
actually isn’t quite a bond we started
calling it pay for success it’s a
distinct type of impact investment it
makes money by improving the
effectiveness on of how our government
spends taxpayer dollars so remember that
I said that only 1% of federal funding
had any evidence of it being spent
wisely our work is taking aim at the
other 99% so right now when government
decides to fund a social program they
typically contract for outputs or
services on a fee-for-service basis such
as the number of hours and a job
training program or the number of visits
the clinician pay for success flips that
on its head instead of paying for the
number of hours in a job training
program government agrees to pay for how
many people who receive that training
actually get jobs and keep jobs and
instead of paying for doctors visits
governments agree to pay whether people
going through those visits with doctors
actually recover successfully some
substance use so pay for success is a
mechanism that changes the way we fund
social programs so instead of taxpayer
dollars spending money on programs with
uncertain outcomes and hoping that they
work it spends money on outcomes after
they’ve been achieved so how does it
work
nonprofits investors and governments
come together to tackle a social
challenge we jointly decide the outcome
that we
achieve and how we’ll know that we’ve
reached our goal the investors put up
the upfront capital to scale a
particularly promising nonprofit then we
collect a lot of data we track progress
we make adjustments along the way if in
the end an independent third-party
evaluator comes in and determines that
the project has been a success then
government repays those investors
through a performance-based contract and
if not taxpayers are off the hook that’s
where the name paper success comes from
government only paying for measurable
tangible results for our communities and
while that may make common sense is
hardly commonplace let me give you a
particular example and an example that
has special resonance for me as an
immigrant Massachusetts has been running
on near full employment and businesses
are increasingly looking to refugees and
immigrants to fill vacant positions but
these immigrants come to our country
with limited job skills and limited
English skills which puts that
Massachusetts economy it’s sustained
growth at risk so we partnered with the
state and a fantastic nonprofit called
Jewish vocational service forty impact
investors put up over twelve million
dollars investors like prudential
financial foundations individuals and
donor advised funds so that two thousand
more immigrants and refugees can get job
training and english instruction they’ll
get training that will put them into
jobs and banking and nursing and
hospitality good jobs with benefits like
being a bank teller at a global
financial institution or being a nursing
assistant a certified nursing assistant
at a boston teaching hospital success of
the program will be based on three
metrics first successful placement into
jobs second higher earnings over time
and third transitions into higher
education investors will only get repaid
to the extent that these outcomes are
achieved so when an investment is
successful it pays off and everyone
benefits
and if not funders bears the risk
instead of taxpayers there now over a
hundred social impact bonds across 24
countries mobilizing almost half a
billion dollars tackling a range of
social challenges helping care for our
veterans giving kids a healthy start
housing the homeless and reintegrating
ex-offenders into society at a hundred
deals the social impact bond tool
remains small but with great potential
and one that’s emblematic of big ideas
the idea that finance can be a public
spirited responsibility the notion that
great nonprofits and finally have the
kind of capital to scale to meet the
demands of society and the aspiration
that every public dollar is enabling the
pursuit of life liberty and happiness
this work has been super super hard
working across the sector with
colleagues to build the field from
scratch has not been easy in fact it’s
the hardest and the most complex work
that I’ve ever done and it’s far from
perfect and some days I feel like the
more we learn the less we know but I am
optimistic and I’m optimistic about the
future of the field because the tool is
inherently optimistic it works to create
mutual benefit for all parties involved
it is about breaking down old silos and
creating new partnerships it’s about
creating new incentive structures to
hold our governments accountable and
this is about reimagining the role of
the capital markets and it’s
fundamentally about the core belief and
something that I hold so deeply that the
financial markets can advance the common
good and that governments can’t benefit
from the rigor and discipline of markets
so maybe in the end we should go back to
calling it a social impact bond after
all not because it’s a bond but because
it bonds us
it’s a pact that holds all of us
together by pledging accountability to
one another by setting clear goals and
working across sectors we can begin to
make progress together that none of us
alone can make thank you [Applause]
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