Bank of America Merrill Lynch Introduces Innovative Pay-for-Success Program in Partnership With New York State and Social Finance Inc.

December 30, 2013 /3BL Media/ - Bank of America Merrill Lynch today announced a social impact partnership with New York State and Social Finance Inc. that resulted in a successful capital raise of $13.5 million to fund a new pay-for-success program. The offering proceeds provided by private and institutional investors will be used to fund a 5 ½-year program focused on comprehensive reentry employment services to 2,000 formerly incarcerated individuals in New York City and Rochester, N.Y.

Social impact partnerships provide an innovative way to finance social programs. These programs provide funding – often in the form of fixed income or private equity offerings (referred to generically as “social impact bonds”) – for selected nonprofits with a proven track record of success, and enable governments to save money and pay only for positive results. If a pay-for-success program meets identified success metrics, private and institutional investors have the potential to earn positive financial returns. Through these programs, the public, private and nonprofit sectors work together to achieve positive social outcomes.

“We are proud to join New York State, Social Finance and others in this landmark program. Through partnerships such as this, and the preferences of today’s investors, innovative social finance has truly come of age,” said Andy Sieg, head of Global Wealth and Retirement Solutions for Bank of America Merrill Lynch. “One of the most pronounced trends among our clients is for their investments to not only earn a return but also to help drive social change in their communities and in society. We’re unlocking the potential for this type of investing, enabling clients to direct capital to programs and organizations proven to produce positive outcomes, and taking an important step toward a scalable new marketplace.”

This new social impact investment opportunity was available only to qualified high net worth and institutional clients of Merrill Lynch and U.S. Trust*, as well as other investors identified by Social Finance. The proceeds of the project will finance programs delivered by the Center for Employment Opportunities (CEO), a world-class provider of training and employment service programs to formerly incarcerated individuals in New York.

“This public-private partnership applies financial innovation to achieve a common goal: increase employment and improve public safety in New York,” said Tracy Palandjian, chief executive officer and co-founder of Social Finance Inc. “The investment is focused on directing resources toward prevention, tackling the source of the problem rather than treating the symptoms, and equipping people with training to help them lead productive and healthy lives.”

Formerly incarcerated individuals face numerous challenges when seeking employment upon release from prison. As a result, many of these individuals continue to engage in criminal behavior and return to prison or jail within three years of their release¹. Corrections costs have quadrupled during the last 20 years, making prison spending the states’ fastest growing budget item after Medicaid². In 2012, New York spent $3.6 billion on state prisons, or more than $60,000 per inmate.

The goal of this pay-for-success program is to reduce recidivism and increase employment by providing participants work experience and supportive coaching. The objectives of the program are to reduce social and financial costs associated with prison recidivism, and to provide a positive impact on family support and public safety. Specifically, this program aims to:

• Expand proven workforce reentry services to formerly incarcerated individuals in need.
• Help to break the downward cycle of recidivism among these individuals.
• Lower government remediation costs, including incarceration and criminal justice services.
• Save taxpayer dollars related to criminal justice expenditures, victim costs of crime, and public assistance.

Overview of the investment and partners involved
Social Finance identified the opportunity, conducted due diligence to select service providers like CEO, and worked with Bank of America Merrill Lynch to structure the partnership with New York State and the U.S. Department of Labor. Social Finance will also provide ongoing performance management throughout the life of the project.

• CEO will provide life skills training, transitional employment, job placement and retention support to 2,000 formerly incarcerated individuals during a four-year period.
• The U.S. Department of Labor will provide outcome-based payments for the benefit of investors for the first half of the program (first 1,000 served), while New York State will make such payments for the second half of the program (next 1,000 served).
• Chesapeake Research Associates will serve as validator to ensure that outcomes are measured according to the specified methodology designed to determine the success of the program.
• Bank of America Merrill Lynch worked with Social Finance to define the terms of the investment and acted as the placement agent for the offering to qualified high net worth and institutional investors.
• The Robin Hood Foundation provided strong early support by making a commitment to invest in the program. Since 1988, Robin Hood Foundation has focused on finding, funding, and creating programs and schools that generate meaningful results for families in New York’s poorest neighborhoods.
• The Rockefeller Foundation provided a $1.32 million guaranty facility to the project, which will cover 10 percent of the investors’ principal should the project fail to repay investors 100 percent of their investment. Throughout its 100-year history, The Rockefeller Foundation has enhanced the impact of innovative thinkers and actors working to change the world by providing the resources, networks, convening power and technologies to move them from idea to impact.
• The investment is for 5 ½ years. Investors may lose all of their investment if the program does not meet certain measures of success. Offers to purchase interests in this investment were made pursuant to a private placement memorandum, which contains important information about the risks, performance and other material aspects of the investment.

*In partnership with Merrill Lynch

¹“Reentry Trends in the U.S.,” Bureau of Justice Statistics, accessed online July 24, 2013.

^{2“Recidivism’s High Cost and a Way to Cut It” New York Times, published April 27, 2011.};">

Social Finance Inc.
Social Finance is a nonprofit organization that is dedicated to mobilizing investment capital to drive social progress. The organization focuses on structuring and managing impact investments that will unlock capital to fund effective solutions to persistent social problems and drive an outcomes-focused social sector. The firm develops Social Impact Bonds and Social Impact Investments, innovative multi-stakeholder opportunities that scale performance-driven social programs, create taxpayer efficiencies, and generate financial returns for investors.

Merrill Lynch Global Wealth Management
Merrill Lynch Global Wealth Management is a leading provider of comprehensive wealth management and investment services for individuals and businesses globally. With over 14,000 Financial Advisors and $1.8 trillion in client balances as of September 30, 2013, it is among the largest businesses of its kind in the world. Within Merrill Lynch Global Wealth Management, the Private Banking and Investment Group provides tailored solutions to ultra affluent clients, offering both the intimacy of a boutique and the resources of a premier global financial services company. These clients are served by more than 150 Private Wealth Advisor teams, along with experts in areas such as investment management, concentrated stock management, and intergenerational wealth transfer strategies. Merrill Lynch Global Wealth Management is part of Bank of America Corporation.

Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and other subsidiaries of Bank of America Corporation (BAC). Investment products offered through MLPF&S:

Are Not FDIC Insured

Are Not Bank Guaranteed

May Lose Value

Merrill Lynch Wealth Management, U.S. Trust, and Bank of America Merrill Lynch are affiliated sub-divisions within Global Wealth & Investment Management. Global Wealth & Investment Management is a division of BAC. U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A., and other subsidiaries of BAC.

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