High net worth investors are seeking a new way to grow their cash, and some are turning to public-private partnerships to put capital in the hands of society’s most needy.
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Bank of America (NYSE: BAC) Merrill Lynch is offering investor clients the opportunity to partake in social impact partnerships, with a “pay-for-success” instrument that the bank claims allows investors to create portfolios that reflect their values.
Liam O’Neil, managing director and head of the markets group for Bank of America Merrill Lynch, says the firm felt it was an outlet for “highly-effective” social impact.
“We were being increasingly told by our clients that they wanted their investments to be reflective of their values,” O’Neil says. “It’s an interesting way to have a direct impact on a very important societal level.”
He explains this investment type differs from a typical charitable donation because if it is successful, the investor will get his or her cash back. In fact, he claims in many cases clients can wind up making up to 12.5% back in an annualized return.
“It’s not a one-and-done,” O’Neil says of the investment. “They buy something that provides a vehicle for investing in a social cause.”
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The first public-private partnership launched in December 2013 with New York State and Social Finance raising $13.5 million to fund a 5 ½ year program to help 2,000 formerly-incarcerated individuals re-enter the workforce. Investors included former U.S. Treasury Secretary Lawrence Summers and hedge fund manager Bill Ackman’s Pershing Square Foundation, the firm reports.
The investment has ripple effects for the investors, the state and the program’s beneficiaries, he says.
“This was a highly-effective organization that helps recently-incarcerated people rejoin society and get jobs,” he says. “When those people get out of jail, and don’t go back to jail, it causes the state to save money. And when the state saves money that is the source of repayment. And the center currently spends too much time fundraising and not enough time helping people--here is a sustainable source of capital for them.”
The amount of investors within the firm’s client base is small—so far just 40 high net worth clients of an overall 2 million person pool. The initial program was marketed to investors who had $10 million or more in investable assets, he says.
But O’Neil says there is growing interest in the space and the bank is working on broadening its investment options with both state and local governments.
In fact, the firm just announced plans to commission a four-month feasibility study to address the needs of the 21 million veterans in the U.S., including homelessness, workplace development and overall wellness, as the Iraq and Afghanistan awards continue to wind down and the number of vets returning home increases.
“We feel clients of all wealth spectrums are interested in this, and in doing business with a firm that is bearing out its social values,” he says.
“We certainly didn’t do this for the money and didn’t turn a profit for doing this, but it wasn’t a goal.”