Transcript Leadership - Impact Investing Australia

Australian Strategy
Key Elements & Questions
DRAFT: 25 June 2014
Building Blocks of Australian Strategy
Focused leadership & clear narrative
Target for Growth + Aspirational Goals
Working Groups operationalise Goals
Design – Governance - Implementation
Mobilise Capital
Investable Products and
Enterprises
Drive Deal Flow
Government engagement & policy
Driving practical actions toward doing & delivery
Building Blocks of the Australian Strategy
Policy
Drive deal flow
focus, identity & narrative
Engagement, education &
clear priorities
Expand catalytic capital
& remove barriers
 Australian Advisory Board
meet industry identified need
for leadership
 Create meaningful
engagement with government
and regulators on priorities
 Galvanise action with sense of
urgency to seize opportunity
for Australia to be significant
contributor
 Target value add for
government including social
issues that are pressure
points
 Create a clear narrative,
socialised through strategic
communications plan
 Identify quick wins linked to
priorities
 Stress test products targeting
latent demand e.g. social sector
 Build economic case for tax
incentives & catalytic capital
 Platform of expertise, including
sources of funding, investment
models, project supply, and
measurement
Leadership dedicated
 Set aspirational, grounded 5
year target for impact assets
with strategic roadmap for
implementation
 Demonstrate strength of
interest and appetite across
sectors, backed up with capital
 Seek central contact point in
governments for social impact
investment activities, and
links to and between them
 Encourage allocations from
institutions
 Enable doing and delivery
through feasibility, prototyping
and incubation of transactions
 Build from industry strengths,
e.g. infrastructure
 Build bottom up data and
surveys to measure industry
growth
Filtering Criteria
Ambitious &
Catalytic
Will it create significant changes in impact
investing practice or opportunities that will
drive a step change in the field?
Enabling
Does it create more opportunity for and
remove barriers to more participants to be
active and mobilise capital and demand in ways
that clearly demonstrate potential and “prime
the pump” for pipeline?
Broad Based
Will it garner support from across sectors and
political orientations, rather than narrowly
tailored to a given industry or ideology?
Focused on Doing &
Delivery
Does it drive toward practical delivery and
identify clear and actionable steps for effective
action or solutions?
Priority Outcomes and Actions
Educate and Mobilise
Capital
 5 year target for impact
assets
Set Aspirational
Goals
Develop Universe of
Investable Products and
Enterprises
 5 year target for number
of deals and funds
 Robust metrics and
 Social Investment Bank/
performance data for key
Fund > A$350m, to catalyse
social issue and service
SIBs, social infrastructure
areas
and entrprise
 Benchmarks for %
allocations
Practical Delivery
short term
 Demonstrate strength of
interest and appetite from
across sectors
 Allocations from key
institutions
 Mission & program related
investments
 Design to build product
existing asset categories
eg. infrastructure,
government credit, fixed
interest
 Investment & contract
readiness fund >A$20m
Drive Deal Flow
 Clearing House/
Exchange
 Measurable change in
awareness & appetite of
advisers/ gatekeepers
 More & better
intermediation
 Multi-disciplinary teams
undertake feasibility
 Mobilise latent demand
 Guidance on fiduciary
requirements &
structures
 Platform for case studies,
tools and what works
Policy Levers & Actions
Practical Actions
Policy Initiatives
Catalytic capital,
drive impact deal
flow

Reorient budget based
funding to catalytic capital

Initiate impact funds,
toward Social Impact
Bank/Fund

Expand range of funding
and financing options for
social policy

Enable mission & program
related investment

Support and enable
intermediaries, including
CDFIs

Mobilise local government

Encourage reorientation
eg OMB memo




Improve & evolve
procurement &
commissioning with
focus on outcomes &
quality
Extend
entrepreneurship
support to social
entrepreneurs
Develop
international
development
investment strategy

Guidance for funding
and financing tools for
social policy
Centralised expert
hub for impact
investment

Outcomes based
commissioning

Guidance for fiduciaries


Promote CDFIs and
product
Cross agency & intergovernmental
support &
secondments

Incentivise State and
Local government action
Improve metrics
to support
mainstream
adoption
Remove barriers;
enhance supporting
regulation,
guidance
Expand reach of
programmes to
boost impact



Review & simplify
regulation to promote
enterprise and
intermediation
Review constraints on
deployment of
philanthropic capital

Focus data and metrics
on outcomes & impact

Review and publish
existing costs for social
issues and what they
measure

Increase disclosure
requirements for
institutions to include
positive screening
Conduct study of
efficient, targeted tax
incentives to promote
impact investment

Review barriers to entry
for CDFIs

Refresh guidance for
fiduciaries and trustees

Support , create, and
systematise metrics and
measures

Share evidence and
lessons where results
based funding is already
utilised

Lead by example with
open data sharing and
transparency
Build ecosystem &
impact enterprise
capacity

Educate and
increase capacity
from policy makers,
public service,
community sector
and investors

Develop model
budget treatments
and agreements for
social impact bonds
and impact funds

Enable platforms
for expertise,
excellence and
evidence

Use “bully pulpit” to
good effect

Reward policy
entrepreneurs

Create a central
contact point in
government
Starter Questions
 Views on aspirational market sizing and timeframe current “top down” analysis ~$3 billion cumulative assets
 What are your top picks in aspirational goals across the
three areas of mobilising capital, product development
and stimulating deal flow
 Other key levers that should be highlighted
 Views on target size for a social impact fund/wholesale
funder
 Working group membership – where are you most
interested to participate and suggestions for additional
membership
Appendices: Context
 Impact Investment in Australia overview
 Strengths & levers
 Challenges
 Potential market Size
 Where Growth may come from
 Potential Investment Pools
Impact Investing in Australia: Overview
 Impact investing is occurring and gaining interest
and attention
 Rising awareness and activity across sectors, though
not clearly led from either government or market
 Transactions demonstrate innovation, impact,
diversity, and some scale; examples across market
segments
 Government action has been limited, but
important; current policy interest driven from the
States.
 Capability, including collaboration and brokering
new generation public private partnerships needs
building
 Market still in early stages of marketplace building
 Significant potential, including beyond domestic
market and strong foundations to build on
 Imperative to translate interest to action & fragmented
activity to more coherent practice
Impact Investing in Australia: Levers & Strengths
Supply
Capital Availability of funds not a constraint, incl.
long term savings pool governed by fiduciaries;
institutions strong & economically significant
Credit enhancement Early products provide strong
examples of credit enhancement & risk reduction
strategies
Demand
Product development & innovation capability &
Australian examples scalable in design
Significant latent demand socially oriented
organisations and communities will need range
of financing options to support their work
Ecosystem
Intermediaries
History of community and cooperative
enterprise
Field growing Early adopters have track record
and have attracted investment
Prudential system & regulation strong
Government & policy directed to impact
investment has been catalytic
Other fields provide strong precedents eg
infrastructure
Leadership
Measurement
Data strength in government and related
institutions such as Productivity Commission
Focus through not for profit reform and early
deals on developing impact metrics
Talent pipeline building to develop the sector
and return with international experience
Network strengths strong personal networks
backbone of leadership in Australia
Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014
Impact Investing in Australia: Challenges
Supply
Barriers to entry Lack of available products and
high transaction costs
Risk-return Insufficient information and
understanding of risk and return for products is
a barrier to take-up
Demand
Product development not yet delivering
spectrum of quality investable propositions
Capacity building for entrepreneurs and nonprofits to make ideas and initiatives investable
is lacking
Intermediaries
More and better intermediation with scale,
depth, diversity and reach needed
Aggregation and/or clearing capacity required
to reduce inefficiencies and improve economies
of scale
Ecosystem
Education Awareness of context, track record,
potential, and practical entry points, remains low
Policy focus and targeted initiatives to catalyse
the market, remove barriers and encourage
participation lacking
Measurement
Measurement systems allowing comparisons
between investments, is lacking
Benchmarking data required to enable investors
to source and make useful comparisons on
completed or prospective transactions
Leadership
Leadership required to develop beyond
disparate activities and personal networks, into
critical mass
Capability Attracting talented people requires
entry points, skill enhancement and career path
Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014
Sizing Market Potential 2018
 Limited bottom up data, hence estimates made top down
 Estimates based on US and UK market growth rates (assuming lag of ~two years) and accounting
for relative size of capital and charity markets, as well as projected impact investment growth
 Tested against what potential sources of capital would need to be mobilised over that period and
sources from it could reasonably be expected to come in the Australian market
 By 2018: cumulative total of ~>A$3 billion, new annual impact investments of ~A$500 million
Estimated potential for cumulative impact assets 2018 ~>A$3 billion
Source: IMPACT – Australia Appendix 4, and analysis courtesy John Mcleod 2014
Impact Investment in Australia: Where Will Growth Come From
A number of social issues stand out for scale of need and spending
Disability
A$6.9 billion (2011-12)
Aged Care
A$12.9 billion (2011-12)
Affordable Housing
Unemployment
A$6.1 billion (2010-11) A$3.9 billion (2011-12)
Health & Hospitals
A$97.8 billion (2011-12)
Early Childhood
A$5 billion (2011-12)
Source: Review of Government Services 2014, Australian Institute for Health and Welfare
Indigenous programs
A$3.5 billion (2011-12)
Impact Investment in Australia: Where Will Growth Come From
New Market Opportunities
 Disadvantage has a postcode in Australia with
persistent & concentrated joblessness
 Australian communities need infrastructure,
economic dynamism & jobs
 That includes soft infrastructure of shared
services & infrastructure for human capital,
the engine of productivity
Social Sector Finance
 Significant budget changes and structural
adjustment means changing needs
 A$8.8 billion of capital investments (2006-07)
61% funded from operating surplus
 Potential for bond market or other
aggregation
Outcomes Based Contracting
 Government outsourced ~>A$25 billion to
the social sector (2007; new data due 2014)
 Little currently oriented to outcomes
 Growing interest in Social Impact Bonds
Focus on Place & Community
Infrastructure
 @ 1% of (2007) outsourced funding potential
~A$250 million; at 10% ~A$2.5 billion
Impact Investment in Australia: Where Will Growth Come From
Philanthropic sources
 Private Ancillary
Funds
 Public Ancillary
Funds
 Corporate
foundations
 Other trusts and
foundations
 HNWI
Superannuation
trustees
 Member based
funds
Social purpose
organisations
 Large NFP
 Smaller
 Commercial funds
innovative NFP
 Faith based funds  Social enterprise
 Community
enterprise
Fund managers
 Institutional fund
managers
 Insurance funds
 Social investment
funds
 Property trusts
 Churches
 Ethical funds
 Communities
 Responsible
investment funds