A Fiduciary's Approach to Impact Investing


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Presented at the 2011 Take Action! Impact Investing Conference in San Francisco.


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A Fiduciary's Approach to Impact Investing

  1. 1. A Fiduciary’s Approach to Impact Investing Lauryn Agnew, Seal Cove Financial Christa Velasquez, Annie E. Casey Foundation Georgette Wong, Correlation Consulting/Take Action! March 14, 2011
  2. 2. Bay Area Equity Fund I$75M private equity fund Invests in companies in low income communities of the Bay Area Partnership with Bay Area Council for deal flow and workforce development$1.65M Casey equity investment (PRI) 10 year partnership Originally set PRI-like return expectation of 10-12% Now performing in top quartile and expect 20+% 10 year goal of 1,500 new jobs created Cumulative jobs created since inception (2010Q1): 2,125 Cumulative jobs for low-income individuals created: 1,224
  3. 3. AgendaEvolution of Impact Investing StrategiesRole of the FiduciaryDefining Mission and/or ValuesImplementing Impact Investing Policies Expectations of ReturnBuilding Impact PortfoliosCollaborating and Networking
  4. 4. Who’s investing?More than foundations MotivationsAsset Owners Financial• Foundations • Looking for outperformance• Individuals, Families & Family Offices • Qualitative signals• Major Pension Plans – CalSTRS, CalPERS • Reduce risk• Insurance Companies – Prudential • TransparencyTheir Ecosystem Social/Environmental• Consultants/Financial Advisors • Tangible Impact – beyond• Philanthropic Consultants intent •Alignment with valuesAsset Managers & Other Intermediaries • Use all assets – financial and• Across asset classes non-financial• Investment Banks – JP Morgan, MorganStanley, Goldman Sachs Interdisciplinary, Silo-Busting Business, Finance, Nonprofits, Government
  5. 5. History of Impact InvestingPredominantly in the public equity spaceSocially Responsible Investing: negative screening South Africa Free/anti-apartheid Faith based screening Weapons, tobaccoCDFIs/Community InvestingESG: Environmental, Social & Governance Green themes, Workplace issues, Shareholder Activism/Proxy votingSustainable Investing – smarter company management yieldsbetter returns? Green, upstream & downstream influences
  6. 6. Impact Investing TerminologyProgram Related Investing (PRI) specific for foundations Primary motivation is social impact; financial return can varyMission Related Investing (MRI) specific for foundations Supports mission Returns can vary; greater emphasis on competitive returnsImpact Investing * ESG/Sustainable * Triple Bottom Line Market Rate (or greater) Financial Return + Social Impact
  7. 7. Impact Investments & Themes(Source: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors, p. 64-65.)
  8. 8. Impact Investing PolicyPolicy decisions Across impact investing spectrum Across asset classes Ongoing program or opportunistic Direct investments or through intermediaries Create new product Sole investor or with co-investors In-house expertise or contracted
  9. 9. Impact Investing ProcessArticulate Mission and ValuesCreate Program/Impact ThemesDefine Desired ImpactDevelop Impact Investing PolicyGenerate Deal FlowAnalyze DealsEvaluate ImpactSource: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors
  10. 10. Case StudiesAnnie E. Casey Foundation Social investments complement grantmaking and provide additional philanthropic tools $125 million allocation of endowment Flexible terms but always invest through financial intermediaries Leverage/co-investment requirement Systems in place to track financial and social returns
  11. 11. AECF SOCIAL INVESTMENT TAXONOMY MISSION INVESTMENT PORTFOLIO POSITIVE VALUES-DRIVEN High Screened impact PRI MRD MRI DBL SRI PRI DepositsSource of $: grant Source of $: Source of $: Source of $: Source of $: Positive Negative endowment endowment endowment endowmentVery high-risk PRIs Market rate Market rate Below market rate Market rateTracked separately Proactive All non-SRI Source of $:from SI portfolio Clear program link Clear program investments with endowment Clear link to (all program link (place social purpose Casey mission Market rateBelow market rate areas) based, FES) but doesn’t have No specific No specific to meet IRS connection toClear program link Meets IRS connection to charitability Casey mission(all program areas) charitability Casey mission requirements requirementsMeets IRS charitabilityrequirements Example: Example: Example: Example: Example: Example: EBDI ACCION Latino Credit Invest NW Clean-tech or Generation Texas Union Green funds Community Inv. Index
  12. 12. Guidelines for Impact InvestingFiduciary A person to whom property or power is entrusted for the benefit of anotherStandard of Conduct Fiduciary duty to act with care, skill, prudence and diligencePrudent Person Standard ERISA and UPMIFA
  13. 13. Strategic ConsiderationsGeneral economic conditions Inflation/deflationMake decisions on a total portfolio basisAllocate risk and return across the portfolioConsider needs and resources to achieve both prudentspending levels + capital preservation
  14. 14. Establishing PoliciesInvestment Policy Asset Allocation Due Diligence and MonitoringStable Spending Policy Smoothing over time: rolling 12 quarters Prudent levels of spending vs. asset allocationCode of Fiduciary Conduct Checks and Balances, no conflicts of interest
  15. 15. Integrating Impact InvestingAssess portfolio positioning Which asset class (es)? Carve out % or 100%? Time Frame Risk and Return Expectations Impact ExpectationsMeasuring ImpactDeal flow and other investment opportunitiesCollaborations and Structuring deals
  16. 16. Impact Investments & Themes(Source: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors, p. 64-65.)
  17. 17. Case StudiesUnited Way of the Bay Area Mission: Cut Bay Area poverty in half by 2020 • Themes: affordable housing, community development 100% Impact portfolio across all asset classes • Attractive to donors for permanent gifts • Spending from the endowed portfolio goes to support operations -> cuts need for fundraising for operations • Asset allocation being developed – Liquidity needs may affect asset class choices in the near term – Measuring impact and developing policies
  18. 18. Collaborations and Co-investorsDeal Structures can be creative Unique risk and return expectations for each investor, collaborations provide liquidityCollaborating for Impact Community Foundations Private and quasi-public foundations and charities Public funds: redevelopment, agency or district funds Community development financial institutionsConferences, networking and databases
  19. 19. Example: Initial Deutsche Bank Eye Fund Structure (Source: Deutsche Bank Global Social Investment Funds & Community Development Finance Group)36% first-loss protection, 1% loan loss reserves, 6-month interest reserve
  20. 20. Example: Living Cities Catalyst FundThe Integration Initiative Restricted fund in Catalyst $55M bank debt $80M invested in 5 cities LIBOR + 250-300 bps Designated financial intermediary in each city Flexible resources to integrate change across $17.3M PRI • Disciplines 3.5% • Geographies (can be but not always subordinate) • Sectors • Funding sources 10% grant funded equity
  21. 21. Impact Investing ResourcesNot-For-Profits Confluence Philanthropy: www.confluencephilanthropy.org Global Impact Investing Network (GIIN): www.thegiin.org Initiative for Responsible Investment: www.hausercenter.org/iri Investors’ Circle: www.investorscircle.net More for Mission Campaign: www.moreformission.org Rockefeller Philanthropy Advisors: www.rockpa.org Social Investment Forum: www.socialinvest.org
  22. 22. Impact Investing ResourcesMonitor Institute: www.monitorinstitute.comFSG Social Impact Advisors: www.fsg-impact.orgOther impact investors: FB Heron Foundation: www.fbheron.org KL Felicitas Foundation: www.klfelicitasfoundation.orgPRI Makers Network: www.pri-makers.netFoundation Center: www.fdncenter.org (PRI Directory)Grantcraft: www.grantcraft.org (PRI grantcraft guide)
  23. 23. BiographiesGeorgette Wong, Correlation Consulting/Take Action!Georgette is the Creator & Curator of the Take Action! Impact Investing Conference series and President of Correlation Consulting. Georgette currently is assisting the US State Department, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of San Francisco’s Center for Community Development Investments to catalyze impact investing across the government, private and public sectors. She is considered a leading speaker and advisor on trends in impact investing. Georgettes most recent work has been published in Community Development Investment Review (Federal Reserve Bank of San Francisco), Solutions for Impact Investors: From Strategy to Implementation (Rockefeller Philanthropy Advisors), Private Asset Management, and Financial Planning Magazine.Over the last eighteen years, she has: advised families, foundations and Fortune 100 businesses on public and private investments; developed and funded early stage companies; and created organizations focused on strategic philanthropy and partnerships between the business and social sectors. Before starting Correlation Consulting, Georgette was: a Director of Client Relationships for Sterling Stamos, a multi- billion dollar private investment firm; a Financial Advisor at Piper Jaffray; and the Development Director for the Asian Law Caucus, the nation’s oldest legal and civil rights organization for Asian Pacific Americans. Georgette is a graduate of the Anderson School of Management at the University of California, Los Angeles (MBA) and Amherst College (BA magna cum laude).
  24. 24. BiographiesChrista Velasquez, Anne E. Casey FoundationChrista is Director of Social Investments for the Annie E. Casey Foundation, a private charitable organization whose principal mission is to help build better futures for disadvantaged children and families. She is responsible for managing the foundations $125 million social investment fund. Her work encompasses all aspects of social investing, including program design, developing investment strategies, underwriting and structuring investments and portfolio management. She is a leader in the social investing field and helped found the More for Mission Campaign and the PRI Makers Network. Prior to joining the Foundation, Velasquez spent six years at the consulting firm Brody-Weiser-Burns, specializing in social investing, community development financing and business planning for social ventures. Her current and former board experience includes: The National Writing Project, TRF Urban Growth Partners, the American Visionary Art Museum, Catholic Charities of the Archdiocese of Baltimore and Goodwill Industries of the Chesapeake. She received a Bachelors degree in Latin American Studies from the University of Chicago and an MBA from the Yale School of Management.
  25. 25. BiographiesLauryn Agnew, Seal Cove FinancialWith nearly three decades of experience in developing and implementing strategies in the institutional investment industry, Lauryn Agnew provides leadership and insight to public fund trustees, non-profit boards and committees, and to investment consulting and advisory firms.Lauryn serves not only as a resource to non-profit organizations for investment consulting services and provides fiduciary education and trustee training for public fund and non-profit board and committee members, she also offers strategic marketing analysis and recommendations to firms with specialized investment strategies.Currently, Lauryn is a Trustee on the Board of the San Mateo County Employees’ Retirement Association (SamCERA), is Chair of both investment committees at the United Way of the Bay Area and the Girl Scouts of Northern California, and is a member of the finance committee of the Immaculate Conception Academy of San Francisco. Lauryn has a Bachelor of Arts degree in Economics from Whitman College in Walla Walla, Washington and an MBA in Finance from the University of Oregon. She is a member of the CFA Society of San Francisco and the Financial Womens Association of San Francisco.
  26. 26. Appendix
  27. 27. UPMIFA Uniform Prudent Management of Institutional Funds Act (Source: www.upmifa.org)UPMIFA requires a charity and those who manage and invest its funds to:1. Give primary consideration to donor intent as expressed in a gift instrument,2. Act in good faith, with the care an ordinarily prudent person would exercise,3. Incur only reasonable costs in investing and managing charitable funds,4. Make a reasonable effort to verify relevant facts, (due diligence)5. Make decisions about each asset in the context of the portfolio of investments, as part of an overall investment strategy,6. Diversify investments unless due to special circumstances, the purposes of the fund are better served without diversification,7. Dispose of unsuitable assets, and8. In general, develop an appropriate investment strategy for the fund and the charity.
  28. 28. UPMIFA Uniform Prudent Management of Institutional Funds ActPrudent Person Standard for Non-Profits No conflict of interests Expectation of higher standard of behaviorUpdates financial concepts Total return, portfolio risks, diversificationAligns investment policies with spending policies Asset allocation strategies, stable spending, purchasing power protection