Minnesota Philanthropists Align Mission and Investment January 19, 2017 For Minnesota Council on Foundations Susan Hammel, CFA
www.cogentconsulting.net Aligning investments with values 1 Dutch Quakers
www.cogentconsulting.net “ ….in the long run economic morality pays” 2
www.cogentconsulting.net Find “It’s a Wonderful Life” bank 3 Photo courtesy IFC Center
www.cogentconsulting.net 4 Cupcakes are on the rise with the help of Sunrise Bank
Socially Responsible Investing www.cogentconsulting.net 5
www.cogentconsulting.net Prudential Social Investment 6 $2 billion since 1976
SRI Indexes Amy Domini www.cogentconsulting.net 7
www.cogentconsulting.net Mission Investors Exchange 8 Baltimore, May 2016
What’s Shifting: Impact Investing Continuum Source: JBJ Consulting via the National Center for Family Philanthropy
www.cogentconsulting.net Community Capital Management Fixed Income 10 CCM to Invest $100 Million in Bonds Financing Rural Community Development
Impact Investing Market 2014 2015 2016 Assets Under Management $60 billion $77.4 billion — Capital Committed $10.6 billion $15.2 billion $17.7 billion (planned) www.cogentconsulting.net • Asset owners: banks, financial institutions, foundations • Foundations: private, family and community • International scale • Housing, microfinance, financial services 11
Impact Investing Trends • Increasing capital investment and deals • Increased investment in energy, food/ag, health care, education • ESG becoming mainstream www.cogentconsulting.net • Blended Capital Focus on the other 95% • Corporations entering market • Challenges: • Deal flow • Capital/risk 12
www.cogentconsulting.net 13
Twin Cities Impact Investing Ecosystem www.cogentconsulting.net 14
Social Network Map www.cogentconsulting.net 15
HIERARCHY MAP Sources of Capital Individual Foundations Investors Accredited Unaccredited Community Private www.cogentconsulting.net Investors Investors Foundations Foundations High Net Worth Family Corporate Foundation G Individuals Foundations Foundations Foundation H Foundation A Foundation D Foundation I Foundation B Foundation E 16 Foundation J Foundation C Foundation F
Definition www.cogentconsulting.net An Impact Investment is an investment that seeks to create both positive financial return as well as positive social or environmental impact that is actively measured -World Economic Forum 17
Investment Types Investment Type Recipient Type Recipient Subtype Debt Not-for-profit End User Equity For Profit Intermediary Government Public Benefit Corporation www.cogentconsulting.net 12 Types of Impact Investments Debt to Not-For-Profit End User Equity in For Profit End User Debt to For Profit End User Equity in PBC End User Debt to Government End User Equity in For Profit Intermediary Debt to PBC End User Equity in PBC Intermediary Debt to Not-For-Profit Intermediary Debt to For Profit Intermediary Debt to Government Intermediary 18 Debt to PBC Intermediary
www.cogentconsulting.net Foundation A Debt to a Not- For-Profit Intermediary 19
www.cogentconsulting.net Debt to a Not- Intermediary A For-Profit Intermediary 20
Debt to a Not-For- www.cogentconsulting.net Profit Intermediary Intermediary A Foundation B Debt to a Not- For-Profit Intermediary 21
Intermediary A Foundation A www.cogentconsulting.net Debt to a For Profit Intermediary Foundation B Intermediary B 22
www.cogentconsulting.net Twin Cities Ecosystem Map 23 Sources of Capital, End Users, Intermediaries
www.cogentconsulting.net Twin Cities Ecosystem Map 24 Sources of Capital
The Saint Paul Foundation • East Metro Job Creation Loan Fund www.cogentconsulting.net 25
www.cogentconsulting.net Noribachi 26 Northwest Area Foundation and HCAP Partners
www.cogentconsulting.net Partnership for a Carbon Efficiency Strategy 27 BNY Mellon and the McKnight Foundation
www.cogentconsulting.net A Mission Investment Made By Foundations SOCIAL PURPOSE INVESTMENTS 28
Program Related Investments • Program-related investments (PRIs) are those in which: 1. The primary purpose is to accomplish one or more of the foundation's exempt purposes, 2. Production of income or appreciation of property is not a significant purpose, and www.cogentconsulting.net 3. Influencing legislation or taking part in political campaigns on behalf of candidates is not a purpose. 29
SPI: Fact or Fiction Fact Fiction SPI’s have to be debt ✔ SPI’s must be made to not-for-profits ✔ www.cogentconsulting.net SPI’s are financially riskier than a grant ✔ Potential for high return disqualifies an SPI ✔ When returned an SPI counts against payout ✔ SPI’s are legally risky ✔ SPI’s require more compliance work ✔ SPI’s have to be used for economic development ✔ 30
www.cogentconsulting.net Contraceptive Implants Volume Guarantee 31 Bill and Melinda Gates Foundation
www.cogentconsulting.net Happy Family Organics 32 W.K. Kellogg Foundation
Advantages of an SPI vs a Grant • Overcome market failures • Send a signal to commercial investors www.cogentconsulting.net • Require financial discipline on both ends • Provide rights of an investor to foundations • Encourage collaboration between program and investment teams • Create ongoing impact • Provide accountability 33
Best Practices www.cogentconsulting.net • When in doubt, document • Engage both the program and investment teams • Pair with grants to maximize impact 34
Compatibility Exercise www.cogentconsulting.net • Fill out worksheet (5 mins) • Partner 1 (10 mins) • Partner 2 (10 mins) 35
Ways to Get Involved www.cogentconsulting.net 1. Where does your cash sleep? 2. Look at your fixed income 3. Make a program related investment 4. Collaborate with other foundations 36
PRI Options www.cogentconsulting.net 37
“Your PRI Partner” www.vennfoundation.org
Overview of Meda’s Loan Fund: Meda operates a $13 million loan fund dedicated to supporting Minnesota’s minority businesses. Currently Meda’s loan fund is: • Invested in 127 minority businesses in 23 Minnesota counties 92% deployed and 97% performing in a higher risk customer base • Demand for Meda’s loan capital is high. Meda has 41 minority business projects in the • pipeline totaling $17.3 million it does not have the capital to support. Impact of Meda’s Loan Fund: In 2015, Meda’s loan fund: Secured a total of $20.7 million in financing for 59 minority business projects • leveraging Meda’s capital at the rate of 6.3:1 • Created 232 jobs paying an average of more than $23 per hour. Customers surveys show 46% of jobs created by Meda are filled by person of color Highlighted Investment in Meda’s Loan Fund: The Otto Bremer Trust has invested $2 million in Meda’s loan fund. These funds are: • Leveraged at a rate of 4.2:1 with outside financing for a total of $7.3 million • Invested in 40 minority businesses These businesses are 58% African American, 28% Asian, 9% Native American and 5% • Hispanic Supporting 667 jobs averaging $17.08 per hour •
www.cogentconsulting.net Mission Investing is the Future 41
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