Bonds (that aren’t actually bonds but rather contractual agreements) where private capital is invested in a social program that is supposed to save the government money. If a private data clearinghouse determines money was saved, the “savings” are paid out to investors as profit, instead of going to other programs.
For example saving on special education costs by providing pre-k or reducing recidivism costs by offering prisoners workforce training. We hear governments are interested in education and workforce training SIB opportunities. If the programs we invest in meet the agreed upon measures of “success,” we’ll net a profit. The one wrinkle is that programs that involve success metrics like workforce outcomes require tracking participants for years to determine if our investment was “successful.” But what’s a bit of surveillance in the name of fiscal accountability and transparency, right?
We’re not sure there is actually profit to be made in the SIB deals themselves. The big money will be in derivatives, bets on the SIBs once we bundle them into asset-backed securities. Then, we’ll be able to trade them in global financial markets; it’s legalized gambling. It worked so well with mortgages we’re definitely bullish on the prospects for a futures market in education data. We just need to get all the devices into schools, the data dashboards online, and Pay for Success legislation approved nationally and we’ll be good to go.