Australian StrategyKey Elements & Questions

DRAFT: 25 June 2014

Building Blocks of Australian Strategy

Drive Deal Flow

Target for Growth + Aspirational Goals

Government engagement & policy

Working Groups operationalise Goals Design – Governance - Implementation

Focused leadership & clear narrative

Driving practical actions toward doing & delivery

Mobilise CapitalInvestable Products and

Enterprises

Building Blocks of the Australian Strategy

Drive deal flowExpand catalytic capital

& remove barriers

Leadership dedicated focus, identity & narrative

Australian Advisory Board meet industry identified need for leadership

Galvanise action with sense of urgency to seize opportunity for Australia to be significant contributor

Create a clear narrative, socialised through strategic communications plan

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

Encourage allocations from institutions

Enable doing and delivery through feasibility, prototyping and incubation of transactions

Build from industry strengths, e.g. infrastructure

Stress test products targeting latent demand e.g. social sector

Platform of expertise, including sources of funding, investment models, project supply, and measurement

Build bottom up data and surveys to measure industry growth

Create meaningful engagement with government and regulators on priorities

Target value add for government including social issues that are pressure points

Identify quick wins linked to priorities

Build economic case for tax incentives & catalytic capital

Seek central contact point in governments for social impact investment activities, and links to and between them

Policy Engagement, education &

clear priorities

Filtering Criteria

Will it create significant changes in impact investing practice or opportunities that will drive a step change in the field?

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?

Does it drive toward practical delivery and identify clear and actionable steps for effective action or solutions?

Ambitious & Catalytic

Enabling

Broad Based

Focused on Doing & Delivery

Will it garner support from across sectors and political orientations, rather than narrowly tailored to a given industry or ideology?

Priority Outcomes and Actions

Educate and Mobilise Capital Drive Deal Flow

Set Aspirational Goals

Develop Universe of Investable Products and

Enterprises

Practical Delivery short term

5 year target for impact assets

Social Investment Bank/ Fund > A$350m, to catalyse SIBs, social infrastructure and entrprise

Benchmarks for % allocations

5 year target for number of deals and funds

Robust metrics and performance data for key social issue and service areas

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

Design to build product existing asset categories eg. infrastructure, government credit, fixed interest

Investment & contract readiness fund >A$20m

Demonstrate strength of interest and appetite from across sectors

Allocations from key institutions

Mission & program related investments

Policy Levers & ActionsPo

licy

Initi

ative

sPr

actic

al A

ction

s

Catalytic capital, drive impact deal

flow

Expand reach of programmes to

boost impact

Improve metrics to support

mainstream adoption

Build ecosystem & impact enterprise

capacity

Remove barriers; enhance supporting regulation, guidance

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

Improve & evolve procurement & commissioning with focus on outcomes & quality

Extend entrepreneurship support to social entrepreneurs

Develop international development investment strategy

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

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

Review & simplify regulation to promote enterprise and intermediation

Review constraints on deployment of philanthropic capital

Conduct study of efficient, targeted tax incentives to promote impact investment

Review barriers to entry for CDFIs

Encourage reorientation eg OMB memo

Guidance for funding and financing tools for social policy

Guidance for fiduciaries Promote CDFIs and

product Incentivise State and

Local government action

Centralised expert hub for impact investment

Outcomes based commissioning

Cross agency & inter- governmental support & secondments

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

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 highlightedViews on target size for a social impact fund/wholesale

funderWorking group membership – where are you most

interested to participate and suggestions for additional membership

Appendices: Context

Impact Investment in Australia overview Strengths & leversChallengesPotential market SizeWhere Growth may come fromPotential 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

Data strength in government and related institutions such as Productivity CommissionFocus through not for profit reform and early deals on developing impact metrics

Talent pipeline building to develop the sector and return with international experienceNetwork strengths strong personal networks backbone of leadership in Australia

Capital Availability of funds not a constraint, incl. long term savings pool governed by fiduciaries; institutions strong & economically significantCredit enhancement Early products provide strong examples of credit enhancement & risk reduction strategies

Product development & innovation capability & Australian examples scalable in designSignificant latent demand socially oriented organisations and communities will need range of financing options to support their work

Supply Demand

Intermediaries Ecosystem

Measurement Leadership

Impact Investing in Australia: Levers & Strengths

Prudential system & regulation strongGovernment & policy directed to impact investment has been catalyticOther fields provide strong precedents eg infrastructure

History of community and cooperative enterpriseField growing Early adopters have track record and have attracted investment

Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014

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 required to develop beyond disparate activities and personal networks, into critical massCapability Attracting talented people requires entry points, skill enhancement and career path

Barriers to entry Lack of available products and high transaction costsRisk-return Insufficient information and understanding of risk and return for products is a barrier to take-up

Product development not yet delivering spectrum of quality investable propositionsCapacity building for entrepreneurs and non-profits to make ideas and initiatives investable is lacking

Supply Demand

More and better intermediation with scale, depth, diversity and reach neededAggregation and/or clearing capacity required to reduce inefficiencies and improve economies of scale

Education Awareness of context, track record, potential, and practical entry points, remains lowPolicy focus and targeted initiatives to catalyse the market, remove barriers and encourage participation lacking

Intermediaries Ecosystem

Measurement Leadership

Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014

Impact Investing in Australia: Challenges

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 billionSource: IMPACT – Australia Appendix 4, and analysis courtesy John Mcleod 2014

Impact Investment in Australia: Where Will Growth Come From

DisabilityA$6.9 billion (2011-12)

Early ChildhoodA$5 billion (2011-12)

Affordable HousingA$3.9 billion (2011-12)

Aged CareA$12.9 billion (2011-12)

A number of social issues stand out for scale of need and spending

Health & HospitalsA$97.8 billion (2011-12)

Indigenous programs

A$3.5 billion (2011-12)Source: Review of Government Services 2014, Australian Institute for Health and Welfare

UnemploymentA$6.1 billion (2010-11)

Impact Investment in Australia: Where Will Growth Come From

New Market Opportunities

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

Social Sector Finance

Focus on Place & Community Infrastructure

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

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 @ 1% of (2007) outsourced funding potential

~A$250 million; at 10% ~A$2.5 billion

Impact Investment in Australia: Where Will Growth Come FromPhilanthropic sources Superannuation

trusteesSocial purpose organisations

Fund managers

Private Ancillary Funds

Public Ancillary Funds

Corporate foundations

Other trusts and foundations

HNWI

Member based funds

Commercial funds

Faith based funds

Large NFP

Smaller innovative NFP

Social enterprise

Community enterprise

Churches

Communities

Institutional fund managers

Insurance funds

Social investment funds

Property trusts

Ethical funds

Responsible investment funds