New Jersey-based Prudential Financial Inc., Steve and Connie Ballmer, and The Kresge Foundation in Troy today announced $40 million in investment commitments to The Community Outcomes Fund, a fund to scale pay-for-success investments in the United States.
According to Third Sector Capital Partners Inc., pay-for-success programs funnel government dollars to programs that have proven track records. The government identifies a social issue, and funders provide capital to help mitigate the problem. The funded services are delivered and evaluated, and the government repays the private funder’s initial investments if the project is successful.
The fund is being raised and managed by New York’s Maycomb Capital and matches private and capital fund with local priorities and public-sector agencies, such as states, public departments, or counties, to invest in social and health services. The fund also helps align government resources with evidence-based solutions to social challenges.
The fund has raised $30 million in cash commitments from Prudential and Steve and Connie Ballmer. Kresge will support the fund with a loan guarantee of up to $10 million, with provides limited credit protection to Limited Partner investors in the fund. The fully raised fund is expected to be $75 million.
“Pay-for-success financing enables government to target resources to programs that work,” says Steve Ballmer. “This is a great way to help ensure every child and family has an equal chance to achieve economic mobility.”
Steve Ballmer was CEO of Microsoft Corp. in Seattle from January 2000-February 2014. With his wife, Connie, he co-founded the Ballmer Group, which works to improve economic mobility for children and families in the U.S. who are disproportionately likely to remain in poverty. The organization has national commitments but focuses on Washington State, Los Angeles County, and the Detroit tri-county region. Ballmer owns the Los Angeles Clippers basketball team, and grew up in Farmington Hills.
Prudential has also supported research and development efforts to help apply the pay-for-success model to new interventions, service providers, and markets.
“Prudential believes everyone should have the opportunity to achieve financial security, and as such, we look forward to scaling promising pay for success projects to reach more underserved communities,” says Miljana Vujosevic, vice president of impact investments at Prudential. “We are eager to support pay-for-success projects that have a proven track record of tackling intractable social problems to improve people's lives across the U.S.”
When fully raised, the fund will enable Maycomb to provide the bulk of senior capital needed in any deal to increase efficiency. In doing so, Maycomb will have the leverage needed to ensure that structuring and negotiations are more efficient and that best practices from early-state pay-for-success transactions are incorporated.
To date, the U.S. has seen 18 pay-for-success projects launch.
“Outcomes-based financing has the opportunity to scale effective social and environmental interventions and align the interests of government and providers,” says Kimberlee Cornett, managing director of social investment practice at Kresge. “This fund will reduce complexity and increase efficiency to bring additional transactions to market, condense the time required to structure a transaction, and aid evaluation both within individual transactions, as well as at a field level. We hope the fund proves to be an important vehicle in this emerging field.”
The Kresge Foundation was founded in 1924 and works to strengthen pathways to opportunity for low-income people in American cities. It invests more than $160 million annually.
Prudential offers life insurance, annuities, mutual funds, and other financial products and services. It has operations in the U.S., Asia, Europe, and Latin America.