Goldman Sachs 2012 Annual Report Download - page 29

27Goldman Sachs 2012 Annual Report
The tendency of juvenile offenders to return to jail is a major issue —
so much so that in New York City, the mayor, Michael Bloomberg, focused
on it squarely in 2012. To help address the problem, Goldman Sachs,
along with Bloomberg Philanthropies, worked with nonprofits and the
City of New York to structure an innovative funding mechanism whose
return depends entirely on the effectiveness of the program it supports.
Known as a social impact bond, this financial instrument can become
a model for driving positive change.
In this case, Goldman Sachs has invested approximately $10 million
in a program that fights recidivism by delivering education, training and
intensive counseling to incarcerated youths. The greater the success
of the program, the greater the return to the investor. If the intervention
isn’t successful, the City pays nothing, but if the recidivism rate drops
by 20 percent, the City itself would save as much as $20 million in
incarceration costs after repaying the loan with a return.
The New York City program is intended to show how such instruments
can be designed: with clear goals, metrics, and risk/reward profiles that
can draw investors. It is a demonstration of Goldman Sachs’ strong
commitment to the idea of social impact investing — of leveraging private
capital to generate returns that are both financially and socially desirable.
As city budgets decline, an innovative effort
suggests a new way to leverage private capital.
From top: Sherry Wang, Margaret
Anadu, Margaret Anadu (both New York),
Urban Investment Group
“We realized that an
investment that offers
returns while delivering
crucial social services
was a potential game
changer.”