Interesting Wall Street experiment supposedly allowing investors to either make or lose investment cash based on the success of after-prison job programs. From Reuters:
Merrill Lynch and U.S. Trust reached out to some high-powered clients this quarter to invest in a social-impact bond whose proceeds finance a program to lower recidivism rates among ex-convicts in New York.
…
Investors can realize annual returns of up to 12.5 percent over five-and-a-half years [depending] on the success of job-training programs for 2,000 newly released prisoners administered by the Center for Employment Opportunities. Success rates will be determined by Chesapeake Research Associates.
The social impact bond is the first pay-for-success instrument in which Bank of America participated, and the first in which a state, New York, is participating. Reducing recidivism will help control prison costs, the fastest growing budget item in New York in 2012 after Medicaid, Gov. Andrew Cuomo said in a news release.
About 20 pay-for-success bonds have been issued in programs worldwide, but more than 10 U.S. states are considering the programs, said Tracy Palandjian, chief executive of Social Finance Inc, a nonprofit that structures such investments.
The article describes the investments as “minuscule compared with the about $12 trillion in U.S. individual investor assets under management and the billions raised weekly in capital markets,” but still: interesting idea. More to come.
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