Wall Street banks are eyeing a nascent market that improves their public image at a low risk and still offers them a reasonable return on capital.
The market is in so-called social-impact bonds, also known as pay-for-performance contracts, through which private capital can be funnelled into philanthropic projects usually funded by governments and charities. The investors will receive a return based on whether a project saves public money by addressing the social ill it targets.
Goldman Sachs has launched two such bonds in the past 16 months - one for $9.6 million aimed at reducing recidivism among teenagers at New York's notorious Rikers Island jail, and the other for almost $5 million, intended to help children from low-income families in Utah prepare for kindergarten. This month, Goldman also said it is raising a fund to allow its clients to make investments that have "measurable social impact," including social-impact bonds.
Now Bank of America Corp is set to launch a social-impact-bond investing program, three sources familiar with the situation said. Details of the program are not known.
Other banks, such as JPMorgan Chase & Co , Deutsche Bank and Morgan Stanley , are keeping a close eye on these projects before getting involved, bank executives said. In some cases banks see the bonds, which were first launched in Peterborough, UK, as a product to sell to their wealth management clients, said George Overholser, chief executive officer of Third Sector Capital Partners, a nonprofit investment bank helping to structure various pay-for-performance deals.
Source: Reuters
