Lenders back bond to keep children out of foster care
Westpac and the Commonwealth Bank have signed up as investors in a $10 million bond from the NSW government, which will fund a new program designed to keep children out of foster care.
It is the first social bond in Australia arranged by big banks and has been structured in a way that is designed to make it appealing to superannuation funds and other big investors.
Social benefit bonds are intended to encourage private investment in not-for-profit initiatives.
Under the model, investors put money into a state government bond that is tied to a specific project - in this case, a program delivered by the Benevolent Society to cut the number of NSW family breakdowns and children in foster care.
Depending on whether the program meets its objectives, investors who choose to have their capital guaranteed can receive up to 10 per cent a year in interest. A tranche of the product that is not guaranteed can yield returns of up to 30 per cent.
The products are being trialled in NSW, with a $7 million social impact bond last month issued on behalf of UnitingCare Burnside. But the latest offering has been designed with big investors in mind, as well as philanthropists, with Perpetual providing pro-bono services as a trustee.
Westpac Institutional Bank's head of structured and asset finance, Craig Parker, said he expected the products to have broader appeal across the market.
"With the big banks and Perpetual involved, we are delivering a market discipline to this style of transaction," Mr Parker said.
In Britain, social impact bonds have also been used to fund projects to provide shelter for the homeless.
Frequently Asked Questions about this Article…
A social benefit bond is a state government bond tied to a specific social project where private capital funds outcomes delivered by not-for-profits. In this NSW example, a $10 million bond will fund a Benevolent Society program aimed at reducing family breakdowns and keeping children out of foster care; investor returns depend on whether the program meets its agreed objectives.
Westpac and the Commonwealth Bank have signed up as investors in the $10 million NSW social benefit bond. Perpetual is providing pro‑bono services as the trustee, and the bond is issued by the NSW government to fund a program run by the Benevolent Society.
Returns are outcome‑linked: investors who choose a capital‑guaranteed tranche can receive up to about 10% per year in interest if targets are met, while a non‑guaranteed tranche of the product can yield returns of up to around 30%, reflecting higher risk tied to program success.
The bond structure includes different tranches. A capital‑guaranteed tranche offers lower, outcome‑linked returns (up to about 10% p.a.) and aims to protect capital if objectives are met, while an unguaranteed tranche accepts greater risk in exchange for potentially higher returns (up to about 30%). Actual payments depend on the program meeting its targets.
The latest NSW offering has been structured with big investors in mind — such as superannuation funds and philanthropists — and arranged by major banks to appeal to large-scale investors. The article notes the design is meant to attract institutional capital rather than being a typical retail product.
Big banks and trustees are participating to help develop a multimillion‑dollar market for funding social services, provide market discipline to the transactions, and make the products more attractive to large investors. Westpac’s Craig Parker said bank involvement should broaden appeal across the market.
Yes. In NSW a $7 million social impact bond was issued last month on behalf of UnitingCare Burnside. Internationally, Britain has also used social impact bonds to fund projects such as shelter for the homeless.
These bonds channel private investment into not‑for‑profit programs that aim to improve social outcomes. In the NSW example, proceeds fund a Benevolent Society program designed to reduce family breakdowns and decrease the number of children entering foster care, linking financial returns to the program’s measurable success.
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