Goldman Sachs Goes to Rikers Island

Abstract

Yi Hua, the leader of an impact-investing initiative at Goldman Sachs, was examining a new financial arrangement in a proposed public-private partnership called the Rikers Island Social Impact Bond (SIB). The proposed SIB was the result of a partnership between Goldman Sachs, the New York City (NYC) Department of Correction, Bloomberg Philanthropies, and three nongovernmental organizations (NGOs)—MDRC, Osborne Association (Osborne), and the Vera Institute of Justice (Vera). The investment that Goldman Sachs was considering would finance the implementation of a cognitive behavioral therapy program for teens (aged 16 through 18) incarcerated at Rikers Island. The goal of the program was to lower the likelihood of those teens returning to jail following their release (i.e., recidivism). If predetermined outcome-based metrics, which focused on lowering recidivism, were reached, the NYC government would repay Goldman Sachs its contributed capital along with a return. The case helps students develop an awareness of the growing innovative financial structure that attracts private capital to finance governmental efforts to address social issues: SIBs. Alongside SIBs, the following related issues could be discussed: financial and social returns, models of investing for social impact, measuring social impact, private-sector financial resources used for public benefit, and private debt vehicles. This case can be used as an introduction to SIBs in an MBA course or in undergraduate electives dedicated to impact investing, public-private partnerships, or other related courses covering the role of business in society. The material can also be used in executive education around issues of cross-sector collaboration to address social issues. Excerpt UVA-F-1807 Rev. Dec. 13, 2017 Goldman Sachs Goes to Rikers Island Yi Hua, the leader of an impact-investing initiative at Goldman Sachs, set her coffee down and fished through her briefcase. She had a long day ahead of her. Hua had joined the Urban Investment group of the firm in the wake of the Great Recession. At the time, in 2009, the firm wanted to bolster efforts to partner with governments and not-for-profits to provide financial resources to aid development in underserved American communities. The Urban Investment group's goal was to develop opportunities for financial and social returns and attract private capital to enable innovative solutions to complex social challenges. A legal advocate for the poor turned investment banker, Hua was excited to join the group and to put her experience to good use tackling issues she was passionate about. Now, in April 2012, Hua was examining a new financial arrangement in a proposed initiative called the Rikers Island Social Impact Bond. Before the project reached her desk, Hua had never heard of social impact bonds (SIBs), though she had heard about the world's largest prison. Referred to as “the island” or “the rock” by inmates, Rikers Island (Rikers) contained roughly 10,000 prisoners in 10 housing units about 45 minutes from Hua's Manhattan office. Rikers, a reoccurring location in the TV drama series Law & Order and its spinoffs, was in the news in 2008 when 18-year-old Christopher Robinson, incarcerated for missing his curfew, died after being brutally beaten by other inmates.