Vinayak raises two good questions. (1) Why invest in social impact bonds, unless the investor is specifically guided by social inclinations? And (2) Do social impact bonds really shift the risk to investors? Or is there some form of risk mitigation for investors?

Some answer the first question by pointing to the benefits of portfolio diversification. And some claim that the returns on SIBs may be competitive with other kinds of investments. But this leads to the second question: risk.

Assessing the Peterborough pilot, the Rand Corporation says that the pilot project appears to provide "no cashable savings to government." Yet, the failure to meet the target doesn't seem to place the investment at risk. It seems to be mitigated through a third party, in this case, the public organization BIG Lottery Fund. It seems that public agencies, philanthropies, and foundations are playing this risk mitigation role in order to develop to social impact market.

So, even where SIBs fail to produce the intended social impact, and fail to reduce public budget expenditures, (in this example, for the Ministry of Justice), they nonetheless produce returns for investors. So, they appear to function by redistributing capital from public and private hands to private investors.

In the New York City pilot project, which also focuses on recidivism reduction, the Bloomberg Foundation is playing this risk mitigation role. In that example, the investor is not a traditionally "social" investor, but rather Goldman Sachs. Why are they investing in SIBs? Aside from improving the firm's public image following strong public criticism in the aftermath of the financial meltdown, there is another reason. It appears that by investing in SIBs, the firm fulfills certain obligations connected to its receipt of federal bailout funds. Under the Community Reinvestment Act, Goldman Sachs must invest a certain amount of its funds in social investment. The SIBs therefore function as a kind of money laundering system, as the returns on these investments are then freed from federal restrictions, and can be invested in other assets.