Merrill offers new charitable investment for ultra wealthy

Firm raises $13.5 million to help former convicts find jobs; returns based on program's success

Jan 2, 2014 @ 1:22 pm

By Mason Braswell

Bank of America Merrill Lynch is hoping that a new product offering will give wealthy clients the chance to see a monetary return on their philanthropy by investing in a program to rehabilitate ex-convicts.

The firm launched its first so-called social-impact bond with $13.5 million in funding from large retail and institutional clients, including Bill Ackman's Pershing Square Foundation, the Laura and John Arnold Foundation and former Treasury Secretary Lawrence Summers. The funds, which were collected over a period of six weeks, will go to help former prison inmates find jobs.

The investment works as a contract between New York State and a private charity, the Center for Employment Opportunities. As part of the agreement, the government sets objectives for the charity to fulfill, and a third party, Social Finance Inc., which partnered with Merrill Lynch to find wealthy investors, will raise the funds.

The state then pays investors based on the program's performance and ability to reduce recidivism.

For investors to get their capital back, the project must meet a baseline goal of an 8% decline in recidivism or increase employment of former convicts in New York by at least 5 percentage points over the next five and a half years. The bond could pay investors up to 12.5% depending on how much more successful the program is beyond those minimums.

Executives at Bank of America Merrill Lynch estimated that returns would likely be in the high single digits.

Returns are taxed as ordinary investment income.

“Even at the greatest level of success, the state's savings will exceed the amount the state pays to investors,” New York Gov. Andrew Cuomo's office said in a statement.

Although Social Finance has helped launch similar funds in Europe, this is the first of its kind in the United States.

The firm has seen a lot of interest in funds that screen stocks based on social or environmental factors, and this will provide another, more direct option for clients who want to affect social change with their investment dollars, said Andy Sieg, the head of global wealth and retirement solutions at Bank of America Merrill Lynch.

“What has never been available until now is a way to directly link their investment dollars and investment returns with impact that they are having on underlying social problems,” he said during a conference call.

The offering was only open to ultra-wealthy investors with over $10 million in investible assets and had a minimum investment of $100,000. Over a period of about two months, the partnership drew about 40 retail and institutional investors who contributed an average of $300,000 apiece.

There will be another call for investment in the project in two years.

In addition, the Rockefeller Foundation, a philanthropic organization founded by John D. Rockefeller, provided a $1.32 million guarantee to the project so that investors are ensured a return of 10% of their principal should the project fail to meet the state's minimums.

Although the $13.5 million invested so far is “small in scale” relative to the more-than $2 trillion in client balances held at Bank of America Merrill Lynch and BofA's U.S. Trust, it is a significant start as the firm looks to capitalize on demand for philanthropic investments among its wealthy clients, Mr. Sieg said.

“This transition is a landmark and is setting a precedent,” he said during the conference call. “We expect to see our firm pursue future offerings, and we expect to see competitors work with Social Finance and others in the nonprofit space to structure and deliver similar offerings.”

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

On the red carpet with Tom James and others at Icons & Innovators

Reflections from Jeffrey Gundlach, Edmund Walters and more at the New York City event

Latest news & opinion

Top 10 IBDs ranked by revenue

These independent broker dealers generated the most revenues in 2017.

8 podcasts advisers listen to when they aren't working

Listening to podcasts for the fun of it.

UBS continues to cut loans to recruits, while increasing compensation to brokers

The wirehouse reduced recruitment loans 20% and increased bonus loans 68% in the first quarter.

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print