Potential investors in the Government's first social impact bond say they are open to the concept but are awaiting details, including how returns are structured.
A pilot delivering employment services to people with mental health conditions is to be the first of four social bond programmes allocated $28.8 million in Budget 2015. Details of how the mental health social bond is to be structured and which organisations are involved has still to be decided by the Cabinet.
A social bond allows the introduction of new, private money into social programmes without increasing public debt and without the need to decrease existing spending, with investors paid based on the level of social value achieved.
But they bring "significant public policy and economic difficulties", according to a 2011 report for the Department of Internal Affairs by Ross Philipson Consulting. Those include difficulty evaluating the success of the contract and potential for a low rate of return with high risk.
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"It's important to look at innovation in this space for social services support in the community," said Liz Gibbs, chief executive of Philanthropy New Zealand, whose members pump about $2.6 billion into local communities each year.
"Philanthropy is such a diverse sector - some of our members have a real appetite for this and others don't."
Gibbs said the challenge is that social issues to be addressed through social bonds "are really complex" and the investment cycle for a philanthropic programme is typically longer term than the election cycle.
Social impact bonds are a new phenomenon worldwide and one of the first and most-widely cited is the UK's Peterborough prison pilot aimed at reducing the rate of re-convictions.
That pilot was shut down last year, because the Government introduced a broader policy that subsumed what was being trialled at Peterborough.
"There would definitely be part of AMP that would be interested in these programmes," said Vicky Hyde-Smith, fixed-income portfolio manager at AMP Capital. "As yet we don't have enough information. We are supportive in principle."
The New Zealand Superannuation Fund said it was watching as social impact bonds developed.