Diamonds In The Rough


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Diamonds In The Rough

  1. 1. Diamonds in the Rough The opportunity of a marketplace for social finance in Canada
  2. 2. <ul><li>&quot;Only when the last tree has died and the last river been poisoned and the last fish been caught will we realize we cannot eat money.&quot; </li></ul><ul><li>- Cree proverb </li></ul>“ Money plays the largest part in determining the course of history.&quot; - Karl Marx
  3. 3. ‘Finance’ is about: managing risk… for financial return <ul><li>From wikipedia: </li></ul><ul><ul><li>The study of money and other assets; </li></ul></ul><ul><ul><li>The management and control of those assets; </li></ul></ul><ul><ul><li>Profiling and managing project risks; or </li></ul></ul><ul><ul><li>The science of managing money. </li></ul></ul>
  4. 4. Risk management = beware of uncharted waters. <ul><li>Motivates selecting the known, familiar, direct </li></ul><ul><li>Creates rigid and specific investment terms </li></ul><ul><li>Legal structure </li></ul><ul><ul><li>For-profit </li></ul></ul><ul><ul><li>Not-for-profit </li></ul></ul><ul><ul><li>Charity </li></ul></ul><ul><li>Use of proceeds </li></ul><ul><ul><li>Operations </li></ul></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Projects </li></ul></ul><ul><li>Investment structure </li></ul><ul><ul><li>Grant </li></ul></ul><ul><ul><li>Loan </li></ul></ul><ul><ul><li>Equity </li></ul></ul>
  5. 5. Which invites a game… of financial ‘Twister’
  6. 6. <ul><li>&quot;Money is a stupid measure of achievement, but unfortunately it is the only universal measure we have.&quot; </li></ul><ul><li>- Charles Steinmetz </li></ul>
  7. 7. “ Social finance” is… <ul><li>A sustainable approach to managing money that delivers social, environmental dividends and economic return. </li></ul>HIGH INVOLVEMENT LOW INVOLVEMENT CHARITABLE COMMERCIAL Venture philanthropy Traditional grant making Venture capital Bank lending Adapted from Margaret Bolton, 2003
  8. 8. … happens at many levels… <ul><li>Investment </li></ul><ul><ul><li>A financial investment that delivers a ‘blended return’ </li></ul></ul><ul><ul><ul><li>E.g. a loan issued to a social enterprise </li></ul></ul></ul><ul><li>Product </li></ul><ul><ul><li>Investment vehicles such as bond issues or private equity funds that combines investors with a variety of objectives around an investment area that will deliver a ‘blended return’ </li></ul></ul><ul><ul><ul><li>E.g. the $20 M EYE Fund </li></ul></ul></ul><ul><li>Catalytic </li></ul><ul><ul><li>(Re)application of financial capital to a specific issue with a comprehensive perspective that encourages a the (re)creation of new system for addressing a social or environmental issue </li></ul></ul><ul><ul><ul><li>E.g. the Great Bear Rainforest </li></ul></ul></ul>
  9. 9. … and is rooted in: <ul><li>A change in conversation </li></ul><ul><ul><li>Control » Potential </li></ul></ul><ul><ul><ul><li>Blended value return </li></ul></ul></ul><ul><ul><li>Conflicted » Collaborative </li></ul></ul><ul><ul><ul><li>Cross-silos </li></ul></ul></ul><ul><li>A change in flow </li></ul><ul><ul><li>Linear top-down » Complex </li></ul></ul>Government Business Charity & non-profit Hybrid Space Source: Aquillan Investments
  10. 10. <ul><li>&quot;Money. </li></ul><ul><li>It's a gas.&quot; </li></ul><ul><li>- Pink Floyd </li></ul>
  11. 11. It begins with a conversation… <ul><li>Aligning interests to create innovative solutions </li></ul>Requirements Return Source Perspective Use Perspective Constructive Dynamic Constrictive Dynamic Risk Restrictions
  12. 12. … results in specific products <ul><li>Venture capital </li></ul><ul><ul><li>Capital regional et coopérative Desjardins (CRCD ) is a $500 million venture capital fund created in 2001 by the Desjardins Movement with the help of a provincial tax credit. Individual investors can invest up to $3500 a year in shares with a 50% tax credit. Shares must be kept for a minimum of seven years. M ission : to provide capital, expertise and access to networks for businesses and cooperatives in all Québec’s regions </li></ul></ul><ul><li>Local community development </li></ul><ul><ul><li>The Columbus Foundation used $2 million to seed an $18 million low-cost housing fund to build 1,600 new units of affordable housing. </li></ul></ul><ul><li>Startup or expansion capital in underserved communities </li></ul><ul><ul><li>Deutsche Bank announced it will create an innovative $20 million investment fund to finance the expansion of eye care hospitals in developing countries. The Eye Fund I will provide loans and guarantees to support the development of affordable, sustainable and accessible eye care for the world's poor while providing a near-market return for investors </li></ul></ul><ul><li>Debt mechanisms </li></ul><ul><ul><li>Milestone achievement of $100m in loans to community finance institutions and social enterprises by Calvert Foundation’s Community Investment Note </li></ul></ul><ul><li>Acquisition of assets </li></ul><ul><ul><li>BC Pension Funds – 21 BC-based union and management pension funds pooled $27 M to form Concert Properties in 1989 (originally named VLC) with the objective of financing affordable rental housing in BC, and creating jobs in the unionized construction industry. Today the 100% pension plan owned real estate corporation has $800 million in assets , with a track record of creating 10 million hours of on-site employment for unionized construction workers. </li></ul></ul>
  13. 13. … and can change whole systems. <ul><li>Coming together of the great catalysts </li></ul><ul><ul><li>capital + community </li></ul></ul><ul><li>Great Bear Rainforest (2 million hectares) </li></ul><ul><ul><li>Start: environmentalists + lumber companies get together </li></ul></ul><ul><ul><li>2001: private foundations + BC premier’s office -> 1st nat. </li></ul></ul><ul><ul><li>2002/3: determination of ecological value and economic pot. </li></ul></ul><ul><ul><li>2007 Outcomes: </li></ul></ul><ul><ul><ul><li>$120 M across 2 funds: $30 M fed, $30 M prov., $60 M private </li></ul></ul></ul><ul><ul><ul><li>Provincial government actions </li></ul></ul></ul><ul><ul><ul><ul><li>New ‘ecosystem based’ land management regime (3x PEI) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>New park designation for ecological protection </li></ul></ul></ul></ul><ul><ul><ul><li>Collaborations </li></ul></ul></ul><ul><ul><ul><ul><li>Collective land-use agreement among prov. gov’t and first nations </li></ul></ul></ul></ul><ul><ul><ul><ul><li>North coast first nations collaborating (e.g. joint marketing and distribution of fish) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Shared governance between private, first nations, government </li></ul></ul></ul></ul>
  14. 14. P roposed Vancouver Homelessness LP <ul><li>from Vancouver Homelessness Funding Model Report </li></ul>
  15. 15. <ul><li>“ Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” </li></ul><ul><li>- Ayn Rand </li></ul>
  16. 16. The social finance ‘diamond craft’ <ul><li>The potential value of any social finance undertaking is strongly influenced by: </li></ul><ul><li>Understanding (clarity) </li></ul><ul><ul><li>Depth of understanding </li></ul></ul><ul><ul><ul><li>What’s the issue? </li></ul></ul></ul><ul><ul><ul><li>What’s involved in addressing it? </li></ul></ul></ul><ul><li>Value (carat) </li></ul><ul><ul><li>Amount of capital involved in the issue? </li></ul></ul><ul><ul><ul><li>Assets, income, expenditures, etc. ? </li></ul></ul></ul><ul><li>Engagement (shape and facets) </li></ul><ul><ul><li>Comprehensiveness of input into discovery and design </li></ul></ul><ul><li>Participation (cut) </li></ul><ul><ul><li>Variety of participants and perspectives in envisioned solution </li></ul></ul>
  17. 17. <ul><li>You can do a lot with diplomacy, but with diplomacy backed up by force you can get a lot more done. </li></ul><ul><li>- Kofi Annan </li></ul>
  18. 18. On the precipice of unprecedented challenges + systemic failure <ul><li>Growing social and environmental pressures </li></ul><ul><li>+ government and market failure </li></ul><ul><li>= the conditions for innovation. </li></ul>
  19. 19. The U.S. and UK have responded <ul><li>US - New Market Tax Credits </li></ul><ul><ul><li>$37 B in economic infusion </li></ul></ul><ul><ul><li>Introduced in 2001 to provide tax credits to investors in Community Development Entities </li></ul></ul><ul><ul><li>88% of investors would not have made the investment in low- income communities without it </li></ul></ul><ul><li>UK - Community Interest Companies (CICs) </li></ul><ul><ul><li>1164 CICs registered </li></ul></ul><ul><ul><li>Hybrid legal structure </li></ul></ul><ul><ul><ul><li>Capped dividend payable to shareholders </li></ul></ul></ul><ul><ul><ul><li>Asset lock retains assets within the company or other CICs </li></ul></ul></ul>Source: US Dept. of the Treasury, Insights, New Markets Tax Credits
  20. 20. encouraging an entire marketplace U.S. Source: GoodCaptial Story Index Presentation and Jay Coen Gilbert, Don Shaffer and John Katovich
  21. 21. encouraging an entire marketplace UK
  22. 22. And in certain areas… Source: GoodCapital and Mark Beam?
  23. 23. … structured financial products. <ul><li>20 deals | 21 orgs | $6.5B </li></ul><ul><li>(affordable housing, microfinance, global ngo’s) </li></ul>
  24. 24. The Canadian diamond field <ul><li>Limiting regulatory framework </li></ul><ul><ul><li>Income Tax Act and charity law significantly constrain flow of capital </li></ul></ul><ul><li>Strong non-profit sector </li></ul><ul><ul><li>$120 B annual expenditures </li></ul></ul><ul><ul><li>>7% of Canada’s GDP </li></ul></ul><ul><ul><li>Above average growth </li></ul></ul><ul><ul><li>1.5 M workers + 0.5 M volunteers </li></ul></ul><ul><ul><li>2nd largest in world per capita </li></ul></ul><ul><li>Internationally significant </li></ul><ul><ul><li>Resources </li></ul></ul><ul><ul><ul><li>Water, energy, forests </li></ul></ul></ul><ul><ul><li>Examples </li></ul></ul><ul><ul><ul><li>Great Bear Rainforest </li></ul></ul></ul>
  25. 25. Preparing for a diamond harvest <ul><li>Changing the conversation </li></ul><ul><li>Developing the craft </li></ul><ul><ul><li>Financial structuring research, demonstration, and dissemination </li></ul></ul><ul><li>Enabling the marketplace </li></ul><ul><ul><li>Policy (tax incentives and supporting hybridization) </li></ul></ul><ul><ul><li>Opening systems to restructuring </li></ul></ul>
  26. 26. CAUSEWAY a national collaboration A national collaboration working on new pathways for financial investment in public benefit .
  27. 27. CAUSEWAY a national collaboration Michael Lewkowitz Start-up Coordinator Phone: (416) 607-5643 (778) 329-0021 Email: [email_address] Tim Draimin Chair, Steering Committee Phone: (604) 647-6611 x244 (416) 481-8652 Email: [email_address] CONTACT