Community interest company Social Finance Israel (SFI) has raised NIS 19.4 million in a bond issue for a social fund that will invest in treatments and solution for type 2 diabetes (adult diabetes). The main investors in the bonds were Bank Hapoalim (TASE: POLI); the family philanthropic fund of Copaxone inventor Prof. Ruth Arnon and her husband, Dr. Uriel Arnon; former Teva CEO Israel Makov; French fund Pharmadom; the Rashi Foundation; Gandyr Investments; Vital Capital Investments LP; a Canadian investment fund; Beyond Family Office; Check Point Software Technologies Ltd. (Nasdaq: CHKP) cofounder Marius Nacht's AMoon investment fund; Boaz Raam; and Alon Piltz.
Social bonds are a model in which the fund raising the bonds (SFI in this case) invests in the handling of a social problem. If it is successful, it gets a return from a government agency or business concern that can profit from having the problem addressed. If the problem is successfully addressed, the money is returned to the investors, so the fund is both social and potentially profitable.
In the current bond designated for treatment of adult diabetes, the government and non-profit agencies involved are the National Insurance Institute (NII) and the Clalit and Leumit Health Services health funds. If SFI manages to demonstrate that its treatment has prevented cases of diabetes, or has delayed the appearance of the disease, it will be paid by NII and the two health funds, which will save money on each case of diabetes prevented. This money will be returned to the investors.
SFI CEO Yaron Neudorfer told "Globes," "The social investment approach says that the attraction of government and philanthropic funding is too short-lived in all areas. When there is a crisis in the capital market, philanthropic funding is the first to vanish and the last to reappear. The volume of investment for profit, on the other hand, is enormous, and we want to divert just 0.1% of it to social issues.
"Our goal is meeting more and more investors who want to their money to do good, not just make a profit. The moderate way of doing this is to invest in businesses that do no damage. These investors are willing to settle for a lower return in order to keep their conscience clear. We are the next level in such investment - investment for good purposes. If it works, it could change the world's distribution of financial resources."
What will actually happen? 2,250 pre-diabetic patients will take part in the program developed by Clalit Health Services (CHS) health policy planning director Prof. Ran Balicer and Israel National Council of Diabetes Prof. Itamar Raz, who also helped develop the SFI financing model. The program will include individual meetings with nutritionists and fitness instructors, group physical activity, education and consultation oriented towards a healthy lifestyle, and the use of technological means. The two-year program will be followed by two more years of follow-up and support. The program will have three treatment classes over 7.5 years. The first class, with 450 participants, is beginning now.
If the proportion of diabetes patients in the group declines to an extent agreed in advance by SFI, NII, and the two health funds following the program's implementation, the investment will be returned to SFI, plus interest.
Financial company UBS, which has been active in responsible and social investments in recent years, played an important middleman role in the bond issue by exposing the program to selected clients to the option of investing in the product.
Neudorfer said, "I was CFO at the Jewish Agency, and in an interview after I left, a journalist told me about SFI, which had been founded at the time by Apax Partners cofounder Ronald Cohen."
The first effort by SFI in the UK was investing in bonds for prisoner rehabilitation. "60% of the people serving short prison terms return to prison within 18 months," Neudorfer says. "The UK social finance fund raised £5 million from investors, who funded four non-profit organizations dealing in prisoner rehabilitation. They tailored a different solution for each prisoner. One had to reconcile with his wife, another needed housing, and a third had to get off drugs. Payment came from the government in the form of a percentage of the saving resulting from these prisoners not returning to prison within 18 months."
Why is the social fund project better than what the government can devise?
Neudorfer: "When the government conducts a tender and selects a provider for a social service, it doesn't know whether it will get what it has been promised. In order to obtain such certainty, it has to engage in regulation and supervision. We make that unnecessary, because SFI gets paid only if the target has been achieved. We're able to take a social problem and deal with it in innovative ways. That makes the government define what success it is willing to pay for, and introduces an element of measurement into social endeavor."
What is happening in Israel?
"In Israel, we launched social bonds to reduce dropping out of higher education, mainly in engineering and computer science. That has social value - not only because Israel has a shortage of workers in these professions, but also because most of the dropouts are economically disadvantaged students. If you prevent a child from dropping out of this field, you not only enable him to get a job, but you also provide him with a career."
Published by Globes [online], Israel Business News - www.globes-online.com - on August 17, 2017
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