Dealflow | May 14, 2018

Prudential, Kresge and Steve Ballmer back Maycomb Capital’s pay-for-success fund

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, May 14 – The Community Outcomes Fund, which will focus on pay-for-success financing, is an initiative of Maycomb Capital’s Andrea Phillips, who previously led Goldman Sachs’ work on social impact bonds.

The fund promises to help vet and structure pay-for-success deals on behalf of other investors to ensure “best practices from early-stage pay-for-success transactions are incorporated.” Prudential Financial and former Microsoft CEO Steve Ballmer and his wife Connie committed $30 million to the fund. The Kresge Foundation added a $10 million loan guarantee to provide credit protection. Kresge will also co-invest $10 million in pay-for-success deals to improve health and human services, Kresge’s Kimberlee Cornett told ImpactAlpha.

The fundraise comes at a critical time for the pay-for-success movement. The federal budget resolution in February included $100 million to be distributed to states and cities for programs supporting youth-employment, high school-graduation and asthma-, diabetes-, homelessness- and recidivism-reduction.

In the U.S., more than 20 social impact bonds, a form of pay-for-success financing, have attracted more than $200 million in investments. Worldwide, more than 100 social impact bonds have mobilized more than $400 million. Ten projects report that they have returned investors’ capital, with a return, and another eight have begun making payments. Maycomb, founded in 2016, is seeking to raise a total of $75 million for the Community Outcomes Fund.

Goldman Sachs lost money on the first social impact bond, a $7.2 million program with New York City to reduce recidivism at Rikers Island prison. Phillips’ team at Goldman arranged the deal with the city and Bloomberg Philanthropies, which covered 75% of Goldman’s loss.

Lessons learned from the Rikers Island deal include the importance of achievable outcome targets and strong implementation partners, said Prudential Financial’s Miljana Vujosevic. Through the Community Outcomes Fund, Prudential has invested in a Massachusetts initiative focused on English-language instruction and workforce development in Boston. “It’s easy to see how someone getting a new job with earnings can link to impact,” she says.

The Ballmers also provided a grant to cover deal costs in new workforce development and early childhood development. “Pay-for-success financing enables government to target resources to programs that work,” Steve Ballmer, who also backs USAFacts, a trove of data on government spending, said in a statement.

The Kresge Foundation’s $10 million guarantee is meant to catalyze investment from non-philanthropic organizations. Pay-for-success initiatives are “still in the first inning,” Cornett said. “Some limited amount of risk protection helps crowd in capital.”