Impact investing overview nov17

Impact investing overview nov17

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  2019-03-21 1 This Photo byUnknown Author is licensed under CC BY-NC-ND 3 …and ALL investments have impact! 4 Impact Investing Defined 4 Goal of Positive Impact environmental, social Across Organizational Forms nonprofits, businesses, hybrids Across a Broad Range asset classes, sectors, geographies An Investment some return expected 5 6 Align $ with values Increase impact in program areas Grow financial resources Diversification and risk reduction Engage next gen 1 2 3 4 5 6
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  2019-03-21 2 7 Nonprofits Intermediaries Grant Portfolio Negative Screens (SRI) PositiveScreens (ESG) Shareholder Activism Investment Portfolio Program-related Investing (PRI) Mission-related investing (MRI) Direct Investing 7 8 1. Loans or lines of credit that could be restructured? 2. Assets that could be made more efficient? 3. Opportunities to create earned revenue streams? 4. Internal challenges around taking on and managing debt? Grant Portfolio Investment Portfolio Direct Investing 9 In your area – Community Development Finance Institutions – Council of Development Finance Agencies National – Nonprofit Finance Fund – ImpactAssets – LISC Grant Portfolio Investment Portfolio Direct Investing 10 2015 state budget crisis burdened nonprofits Foundation grants to Bridgeway for cashflow loans • 2-3 week turnaround • Term 90-180 days • ~6% (below market rate) • 1% origination fee The Forbes Funds 11 Socially Responsible Investing (SRI) – “Negative screening” – Avoiding “sin stocks” ESG Investing – “Positive screening” – Assessing Environmental, Social, Governance risks and impacts Meet “prudent man” & UPMIFA Grant Portfolio Investment Portfolio Direct Investing 12 You can buy data Scoring criteria vary – more important to understand good or high score medium score poor or low score Grant Portfolio Investment Portfolio Direct Investing 7 8 9 10 11 12
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  2019-03-21 3 13 Leading provider of investment decisionsupport tools Serves 97% of top asset managers 14 Info on: 6,000+ companies 400+ metrics 15 Investment Opportunities ESG E S G Pfizer CCC 4.2 1.8 3.5 Starbucks BB 4.2 4.3 4.0 UPS A 7.4 2.7 4.1 16 1984 – started with S. African divestment Mid-90s – 100% portfolio – 70% ESG equities – 30% community-based fixed income Results – Consistent top quartile – Volatility reduced 16 Est. 1956 Social justice focus ~$26M assets 17 A. Investors receive ballots to vote at shareholder meetings of publicly- traded companies – Proxy vote on own or through investment firm – Use firm such as Institutional Shareholder Services Grant Portfolio Investment Portfolio Direct Investing 18 B. Investors and institutions act to influence biz practices & policies – Negotiate with corporate leaders and industry groups – File shareholder resolutions “Divestment” when no progress Grant Portfolio Investment Portfolio Direct Investing 13 14 15 16 17 18
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  2019-03-21 4 19 Clear IRS law,guidance Primarily for foundation’s charitable purpose(s) Below-market return (risk-adjusted) – Deposits, loans, loan guarantees, Social Impact Bonds, equity – Nonprofits and businesses Typically minimum $25-$50k Grant Portfolio Investment Portfolio Direct Investing 20 Investment counts toward 5% payout Principal repayments increase Minimum Distribution Requirement – Losses don’t impact MDR Interest income usually taxable “Expenditure responsibility” if in a business Grant Portfolio Investment Portfolio Direct Investing 21 https://www.youtube.com/watch?v=0-viHXktBME 22 Lends to environmentally responsible businesses in poorer rural areas. – $34M to 200+ biz so far Foundation support – Grants for operations and capacity building – $500k PRI to expand loan fund (2%,10 years) Mary Reynolds Babcock Foundation Artspace and Ford Foundation Artspace develops affordable live-work space for artists Foundation support – $3.75M PRI for predevelopment activities in 12 cities (1%, 10 years) – $750k grant to expand operations, education work 24 No IRS definition, a little guidance Made from corpus - expect risk- adjusted market rate return (or close) – Cash, fixed income, equities, venture capital, real assets Meet “prudent man” and UPMIFA – with proper due diligence! Grant Portfolio Investment Portfolio Direct Investing 19 20 21 22 23 24
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  2019-03-21 5 25 Not a charitableactivity - don’t impact Minimum Distribution Requirement Investment income & losses recorded like anything else in portfolio Cautions – Self-dealing & excess biz holding – Jeopardizing investments Grant Portfolio Investment Portfolio Direct Investing 26 Tech company that created tools enabling personalized learning & teaching. Foundation support – $5M MRI (equity) for working and growth capital – Made profit when Wireless Gen. bought by News Corp. W.K. Kellogg Foundation 27 Educational software biz + Cook Inlet Tribal Council + Investors (MRIs) Never Alone video game 30 1. Define Goals & Scope 2. Design & Implement Your Strategy 3. Evaluate and Learn 25 26 27 28 29 30
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  2019-03-21 6 31 Core values Investment beliefs Themesor program areas (geographies, etc.) Tools, return & risk profile Governance 1. Define Goals & Scope 32 Initial scope – Opportunistic/experiential – Carve-out or pilot – Defined goals – 100% Due diligence criteria, processes 1. Define Goals & Scope 33 Update Investment Policy Statement Build capacity – “Ride alongs” – Intermediaries, DAFs – Funder coalitions – Legal & investment counsel, consultants – Internal 2. Design & Implement Your Strategy 34 Learning – Mission Investors Exchange – Global Impact Investing Network (GIIN) – TheImpact – As You Sow – SOCAP 2. Design & Implement Your Strategy 35 Sourcing – Grantees, peers – Angel investment groups, accelerators – ImpactAssets 50 – ImpactBase (by GIIN) & TONIIC – ImpactSpace 2. Design & Implement Your Strategy 36 Customized “search image” and “impact scan” 2. Design & Implement Your Strategy 1st Choice 2nd Choice 3rd Choice 31 32 33 34 35 36
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  2019-03-21 7 37 3. Evaluate and Learn Impact dataframeworks – USSIF/Bloomberg list of funds and ETFs – IRIS (by GIIN) – SASB – B Lab GIIRS – U.N. Sustainable Development Goals 38 3. Evaluate and Learn Evaluation trade-offs – Diffuse vs. targeted – On-target vs. near-target – Nonprofit capacity Revise policies, processes over time 39 Deal flow Manager track records Commitment to measurement Impact – “but-for” thinking, additionality Tax reform and federal budget 40 Phase 1: Peer Pressure No weapons (SRI) Heartwood Forestland Funds Boston Community Capital Strategic Investment Fund 40 41 Phase 2: Purposeful-ish Grants to As You Sow, Coalition for Green Capital, others Proxy voting review Task force New manager and ESG set- aside 41 37 38 39 40 41 42