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Good morning, it’s great to be here. I wanted to spend the first few seconds of my presentation
considering innovation, because that is what we are here to talk about, innovation housing.
It is defined as something new or different, the act of innovating. I told a colleague
of mine when she asked who is attending - Housing providers, service providers, representatives
of government, maybe some real estate agents etc. She said, ‘That’s an audience that
can create magic.’ I thought what a great challenge for us to try and create some magic
today. Thinking about the wide breadth of skills and experience in the room today, that
is what we want to try and find and tap into and that is what innovation demands. I am
certainly not a magician. It requires everyone to come together. I hope over the 10 minutes
or so that I can facilitate some of that discussion with some provocative ideas about what might
be possible thinking about increasing supply in an innovative way.
I wanted to give you a quick snapshot who SVA (Social Ventures Ausralia) is, tell you
a bit about the work we have done in the Impact Investing space and how it’s mobilising
capital to be deployed into a number of different challenging intractable challenges we face
from a social perspective, and then put a few challenges out to the audience.
SVA are 12 years young. We are not-for-profit ourselves. We have about 50 staff scattered
around the country. We have done a fair bit of work in ACT over the last four or five
years helping led the ACT social enterprise hub. We have a national footprint. In the
way SVA does its work those three big circles are critical. We try to connect capital from
everything - from government, super funds, high net worth individuals - and deploy it
into the social sector. We look to attract experienced talent, both internal within SVA
but work with talent within the sector to build their capacity. All the work we do needs
to be underpinned by evidence base. If the evidence base is not there, we work to build
up that evidence base and ensure where we are allocating capital and resource is into
programs, projects etc that are going to achieve the outcomes we are seeking to achieve.
Impact Investing is one part of the work that Social Ventures does. It’s the part I am
director in. This is a nice clean slide to give you a flavour of what the impact investing
market looks like. It’s relatively in its infancy within Australia. There has been a
bit more development in the UK and US. It’s been borne out of both the demand and supply
side. On the demand side, we have for purpose organisations that are looking for more diverse
funding base. Historically not-for-profits would largely seek their funding from government
alone. We also have the chance around governance looking for diversified areas as source of
capital to be deployed and address the social challenges we are facing in what is across
the country fiscal challenges. On the supply side, and this might be a surprise
to some, there are large number of investors that are seeking to put their capital into
action in the social space. It needs to fit in with particular parameters and criteria
on which they invest. There is a large amount of capital wants to be deployed within the
sector. This is very much where the impact market sits. That is the role of SVA and others
who are seeking to bring together those two ends of the spectrum.
As I mentioned, as you look across that spectrum, historically philanthropic grant funding providers
will receive funding and need to deliver certain outcomes but the money is out the door and
there is no expectation that we return that money. On the other side of the spectrum is
the commercial for-profit world in which investment is made and there is an expectation of return,
depending on whatever that vehicle might be. Sitting in the middle Impact is the investing
space. From SVA’s perspective we see that playing a flexible role bridging the gap between
philanthropic funding on one end of the spectrum and at the other being to maximise profit
on the other end. It’s a little bit disruptive, as that quote suggests. It’s moving away
from two traditional structures and trying to create a bit of a middle ground.
Just thinking about specifically what that looks like from a financial product perspective,
again many of you will be familiar from the donation, government grant world or government
contracting work. On the other end of the spectrum is your bad end of town with private
equity players and venture capital out there to make as much money by speculative means,
etc. But as you can appreciate there is a lot of activity and potential in between.
The social debt idea, and SVA has a small fund deploying capital in this space, is to
be more flexible on their terms than a traditional financier in a mainstream bank. That can be
anything from the terms of the loan to the underlying security that is required. It is
much more flexible and really a desire to get alongside our partners, organisations
we invest into, to actually support them and ensure the capital we deploy is used for the
purposes but also to ensure the social outcomes are being achieved.
There is a commercial debt which any of us who have a mortgage understand what that world
looks like. There is this new term ‘social impact bonds’ that some of you might be
familiar with. It’s a new kind of instrument in terms of its risk profile that sits between
commercial debt and equity. The way it works at a simple level is that it is a tripartite
agreement between government, a service provider and private investors. Essentially it identifies
a challenging social problem that has a significant fiscal or financial burden on governments
that can be easily quantified, measured. If a program is delivered that can make a material
impact on those savings, then the savings from the delivery of that service goes back
to repay investors. Basically investors stump up the capital up front to go into the service
provider. The service provider delivers that service. Over a period of time through rigorous
measurement as the outcomes are being achieved, government saves money and a proportion of
those savings are channelled back into the investor. The investor receives a return.
The government gets both a social outcome and also savings from budgetary perspective.
The service provider is happy because they have received capital and have been able to
deliver the service. In terms of thinking about how much capital
is available - it’s kind of how long is a piece of string? What we do know is that
there is close to $2 billion of capital invested through our super funds largely.
As our CEO likes to talk about, if even one per cent of funds was deployed in the social
impacting space we would see $20 billion invested into the space. That’s a huge figure.
The requirements on tapping into some of that capital is difficult and onerous but, even
from conversations the impact investing team at SVA has had with super funds and high net
worth individuals, fund managers are keen to deploy into the social space given the
right parameters and structures being impacted. There is a huge amount of opportunity. The
market is large. There is a lot of capital. It’s around being collaborative and innovative
across all of us in the room to work through how we set up appropriate products and vehicles
to tap into that money. Who are the investors I have mentioned? SVA
has engagement across all these high net worth individuals, everything from self-managed
super funds to family trusts and private ancillary funds, investors who are socially minded and
have lots of capital at their disposal, large philanthropic foundations and trusts, corporate
foundations, large super funds and institutions. At varying degrees lots of these players are
very keen to step into the impact investing space but lots of them don’t know how to.
That is where SVA and others who play in the intermediary space try to hold their hands
and find products and opportunity in which to invest that capital.
I wanted to share this. This was a survey we did after one of the social impact bonds
closed up in New South Wales. It is regarding restoring young children who are in out of
home care back to their original families. It’s an interesting insight into the mindset
of the investor base. About 60 investors invested in that bond. We raised about $7 million.
It was heavily over-subscribed in terms of more people wanting to put their capital into
the bond than we can take on, which is a positive sign. The two highest measures of what drove
the decision by our investor base was both the social impact, the impact on lives of
children, and also the financial return. I suppose it emphasises the importance of measuring
those two kinds of considerations that investors are absolutely concerned about - the social
impact but equally the financial return is critical. Hitting the benchmarks is required.
What do we know about collaboration? What have we done in this space? We have a fund
that is a combination of both Commonwealth grant funding and private investor capital.
We have raised $5 million (?) in private investor money and are investing that into
enterprises and community housing providers around the country where we see a tangible
social impact along with a financial return on that investment. We are also heavily involved,
along with xx Mission and the Brotherhood of St Lawrence, to bring together a consortium
for large impact investing deal in Australia where we raised $165 million to buy what
used to be the ABC Learning Centres and is now Good Start. Of that $165 million, about $40 million
was what we call social notes, which is social impact investors that were wanting to put
their capital into this investment to see material outcomes for young children who are
in child care. I suppose that gives us optimism and hope about where the next large transition
is going to come from in the impact investing space. One of the first social benefit bonds
was a collaboration between SVA and Uniting Care Burnside across a number of states and
territories in Australia. There is a lot of interest in social impact bonds. They are
for a specific part of the market. There is a huge community, and investors are attracted
to that model. The question is: what next? There is a lot
of activity in the direct fund investment space, social impact bonds, in what else can
we put our heads together and find vehicles, structures in which investors are comfortable
to deploy their capital? The obvious thing leads to investment opportunities, particularly
thinking about housing space for those with disabilities. Land and stock is vital. Because
of the affordable challenges that Ilan spoke about, how do we find land and stock for potentially
concessional rates? What is the role for government to play there, for community housing providers
to play and for real estate agents sourcing that land and stock?
We absolutely need private capital. Governments are clear across the country they are not
going to stump up the full amount of capital required. That is where we need to be innovative
around structures that tap into the private capital. We need innovative partners, that
is not just SVA but working with a large number of players to bring this to life. Each of
you in the room has an important role to play in that. Of course there are challenges around
market failure in this space and because of some of the affordability challenges that
impacts on the economics or viability of particular project from a purely market perspective.
The government’s role is to plug that gap by providing I suppose the framework needed
to ensure that private investment is unlocked. Just briefly in closing I wanted to talk through
two examples that SVA has been involved in recently in the housing space. There is the
youth foyer. The youth foyer is not specific to people with disabilities but it does highlight
the innovation within this space and what is possible. We are looking at a development
in New South Wales for young people at risk of homelessness. It is going to be a 60 studio
apartment build, housing young people at risk of homelessness with mainstream student accommodation.
By mixing the tenure and tenancy mix it starts to improve the economics and encourages more
private capital into the development. We are looking at $7 million upfront capital that
is required, close to 70 per cent of that can be sourced from impact investing dollars.
All those investors we talked about before use that capital to come in. A gap of just
over $2 million needs to be plugged either through support of government, philanthropists
corporate etc. Within this particular deal the land is provided by the service provider,
which again is largely a free kick. The nature of some of these challenges is that it needs
to be cobbled together as a package. We can’t go to market and do a full development because
the economics can’t stack up. The second is the Queensland elderly parent
carers initiative that some of you might be familiar with. The objective is to provide
sustainable living arrangements for adults with disability cared for by elderly parents.
In a basic contractual deal the commercial development has been done and the developer
is comfortable with giving up one floor of a six floor development where those eight
dwellings are going to be disability friendly through a government grant of $1.6 million,
which is leveraged to double that to ensure that the accommodation could be affordable
and suitable for people with disabilities. The final slide and I suppose the question
is: what next? How do we get our heads together and collaborate on some of these big challenges?
As Ilan mentioned, they are challenging when affordability issues are prevalent, issues
around affordability and stigma, important design considerations that often increases
the cost of capital builds. How do we solve this? It’s a case of if everyone comes together
- thinking about community housing providers who are willing to leverage and potentially
have land or stock they can contribute, progressive boards or managements that are able to see
through some of the immediate challenges and think big picture. There are input and design
and location considerations. It is absolutely a requirement for government to be a willing
participant. Forums like this are a good reflection of that: for government to be thinking about
what role do we play to plug that gap between some market and market returns; for real estate
thinking through access to land and helping around some of the stigma changes; and even
developers thinking about low cost construction models. There are no easy solutions. I suppose
that’s the beauty of collaborating together. That’s where the need for some magic is
across the room. My final slide - I recently saw The Lion King
musical up in Sydney. I am a bit of sucker for the old Disney production. You will know
from this scene Simba gets told ‘everything the light touches is ours’. Not to get too
philosophical, we are on the cusp, particularly in the ACT with NDIS rolling out and this
incredible opportunity for us look out upon the horizon. With all the heads, skills and
experience in this room it’s a great time to begin that journey and think about how
we can collaborate to get terrific outcomes. Thank you. (Applause)