Creating real value through investment

man signing document
By Ian Marr and Christine Scott

11 May 2016

Ian Marr, Chief Executive of Aberdeen YMCA, sets out his vision for transforming public services through a new investment structure, the Social Impact Investment Partnership.

The model moves the provision of public services away from the more traditional crisis model towards early intervention and prevention.  Christine Scott reflects on the potential for new models of social investment to transform public Services in Scotland.

The Social Impact Investment Partnership

By Ian Marr, Chief Executive of Aberdeen YMCA

In the late twentieth and early twenty first century investment often seemed to be dominated by short termism, about extracting value from companies rather than creating value in those companies.  Good investment should be about creating value for everyone involved in that investment.

Social Impact Investment offers a unique structure to create appropriate value for all parties to the investment.

In Scotland, we have created an accessible investment structure called a Social Impact Investment Partnership (SIIP) to facilitate investments which produce not only a financial return but also a social return by providing services to support some of the most vulnerable members of our communities.

The SIIP is outlined in a little more detail in The Social Impact Investment Partnership: Twenty First Century Investment PDF [319 KB].

Essentially the SIIP involves three parties:

  • The Delivery Partner who designs and delivers a service in the community to address a particular social issue e.g. youth unemployment.  The Delivery Partner is usually an organisation from the Third Sector.
  • The Investment Partner(s) who provide(s) the working capital to cover the cost of the service delivery.  The Investment Partner(s) can be institutional investors or retail investors, including unsophisticated investors.
  • The Outcome Partner who agrees a set of desired outcomes with the Delivery Partner in advance. If these outcomes are achieved then the Outcome Partner repays the working capital with interest at a previously agreed rate.  The Outcome Partner is usually a department of Government.

This structure brings together the public, private and social sectors in a unique partnership which focusses on outcomes, it is the achievement of these outcomes which release payment.

This focus on outcomes allows the Delivery Partner to define and manage the process used to achieve the mutually agreed outcomes. The Delivery Partner is the party best suited to this role as they have the greatest experience and understanding of what actually works in the real world of service delivery with a diverse variety of clients.  Too often the process of delivery has been defined by external parties.  The SIIP creates a context where the Delivery Partner is trusted to deliver.

It also allows the Outcome Partner to invest in intervention and prevention.  Historically this has been much more challenging for Government – if they invest in a preventative service which fails they must spend again to deal with the results of that failure.  The SIIP structure means that the Outcome Partner only pays for outcomes after they have been achieved. In turn this means that Outcome Partner doesn’t have to stop an existing service while they trial the new SIIP funded service.  In a SIIP the risk of service failure is transferred to the investors.

In return for taking that risk the investors receive a return on their investment in much the same way that they would in any investment.

The Outcome Partner pays for the service in arrears from the savings generated as a result of the preventative services delivered.

The net result of a SIIP is the delivery of high quality, sustainable, cost effective services where:

  • The Outcome Partner pays for guaranteed results.
  • The Investment Partner(s) receive(s) both a financial and social return on their capital.
  • The Delivery Partner has appropriate access to working capital to create effective services.

...and, most importantly the clients receive the best possible service.  Everyone involved in this investment benefits from the investment – this investment creates value.

View Ian’s TEDx talk (below) on investing in communities at the University of Aberdeen.

Early intervention and preventative spend

By Christine Scott, Assistant Director, Charities and Pensions

There is something very intuitive about the concept of prevention, intervening to head off a crisis.  Whether it’s the Saturday morning park run to stay fit or daily Sudoku practise on the bus to work in the morning to keep mentally agile, there are steps we can all take as individuals to keep in shape and to stay in shape for longer.

However, early intervention and preventative spending is needed where individuals and communities need additional support.  When budgets are tight, how can government maintain existing services while looking for innovative ways to reduce future demand for them?  The SIIP is one model of financing which can work in this space, harnessing the experience and skills of the charity sector and wider social enterprise sector as Outcome Partners.

While there are risks, a successful project can transform lives, for example, by supporting young people gain employment and stay in employment.  Having a more secure start to adult life has much longer-term benefits for the person themselves, their family and the community they live and work in.

The ICAS Charities Committee undertook a survey last year of our members involved in the charity sector.  As a supporter of the preventative spending approach to the provision of public services, the Committee was interested in gauging whether charities had an appetite for collaboration with both public service purchasers and private funders, who would be the Outcome Partners and Investment Partners under the SIIP model. The Committee was encouraged by the response from our members who indicated that 66% of the charities they worked in or acted as trustees for would welcome the development of funding models where the risks are shared among the partners.

For public services to remain sustainable, collaboration and innovation are vital not just to service design but also to methods of financing.  The work undertaken by Aberdeen YMCA to develop the SIIP provides a ready-made model but can government and the voluntary sector rise to the challenge?

Topics

  • Charities

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