NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, July 29, 2015

Wall Street firms like Deutsche Bank (DBKGn.DE), Santander Bank and Bank of America (BAC.N) are still interested in backing U.S. social impact bonds, despite the failure of the first such initiative.

Social-impact bonds allow private capital to be funneled into philanthropic projects usually funded by governments and charities. Investors receive a return based on whether a project saves public money by addressing the social issue it targets.

Goldman Sachs (GS.N) helped to fund the first such program in the United States three years ago, a $9.6 million plan to reduce recidivism among teenagers at New York’s Rikers Island jail.

Last month, the program’s third-party monitor, the nonprofit Vera Institute, pulled the plug. It announced the initiative, originally intended to run for four years, would shut down in August after failing to hit its goal to cut repeat offenses by 10 percent. Goldman lost $1.2 million and Bloomberg Philanthropies – a partner in the project – lost $6 million, which would have been recouped had the program met its goals.

Still, the idea of social impact bonds, also called pay for performance contracts, has appeal for those who continue to participate in and seek deals in that space, officials at the firms told Reuters.