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
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
Agenda
� Evolution of Impact Investing Strategies
� Role of the Fiduciary
� Defining Mission and/or Values
� Implementing Impact Investing Policies
� Expectations of Return
� Building Impact Portfolios
� Collaborating and Networking
Who’s investing?
More than foundations
Asset Owners
• Foundations
• Individuals, Families & Family Offices
• Major Pension Plans – CalSTRS, CalPERS
• Insurance Companies – Prudential
Motivations
Financial
• Looking for outperformance
• Qualitative signals
• Reduce risk
• Transparency
Social/Environmental
• Tangible Impact – beyond
intent
•Alignment with values
• Use all assets – financial and
non-financial
Interdisciplinary, Silo-Busting
Business, Finance, Nonprofits, Government
Their Ecosystem
• Consultants/Financial Advisors
• Philanthropic Consultants
Asset Managers & Other Intermediaries
• Across asset classes
• Investment Banks – JP Morgan, Morgan
Stanley, Goldman Sachs
History of Impact Investing
� Predominantly in the public equity space
� Socially Responsible Investing: negative screening
� South Africa Free/anti-apartheid
� Faith based screening
� Weapons, tobacco
� CDFIs/Community Investing
� ESG: Environmental, Social & Governance
� Green themes, Workplace issues, Shareholder Activism/Proxy voting
� Sustainable Investing – smarter company management yields better returns?
� Green, upstream & downstream influences
Impact Investing Terminology
� Program Related Investing (PRI) specific for foundations
� Primary motivation is social impact; financial return can vary
� Mission Related Investing (MRI) specific for foundations
� Supports mission
� Returns can vary; greater emphasis on competitive returns
� Impact Investing * ESG/Sustainable * Triple Bottom Line
� Market Rate (or greater) Financial Return + Social Impact
Impact Investments & Themes(Source: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors, p. 64-65.)
Impact Investing Policy
� Policy 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
Impact Investing Process
� Articulate Mission and Values
� Create Program/Impact Themes
� Define Desired Impact
� Develop Impact Investing Policy
� Generate Deal Flow
� Analyze Deals
� Evaluate Impact
� Source: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors
Case Studies
� Annie 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
PRI
MISSION INVESTMENT PORTFOLIO POSITIVE VALUES-DRIVEN
AECF SOCIAL INVESTMENT TAXONOMY
Source of $: endowment
Below market rate
Clear program link (all program areas)
Meets IRS charitability requirements
Source of $: endowment
Market rate
Clear program link (place based, FES)
Source of $: endowment
Market rate
Proactive
Clear link to Casey mission but doesn’t have to meet IRS charitability requirements
Source of $: endowment
Market rate
All non-SRI investments with social purpose
No specific connection to Casey mission
Source of $: endowment
Market rate
No specific connection to Casey mission
MRD
Deposits
MRIHigh
impact
PRI
Source of $: grant
Very high-risk PRIs
Tracked separately from SI portfolio
Below market rate
Clear program link (all program areas)
Meets IRS charitability requirements
Screened
SRIDBL
Example:
ACCION Texas
Example:
EBDI
Example:
Latino Credit Union
Example:
Invest NW
Example:
Generation
Community Inv. Index
Example:
Clean-tech or Green funds
Positive Negative
Guidelines for Impact Investing
� Fiduciary
� A person to whom property or power is entrusted for the benefit of
another
� Standard of Conduct
� Fiduciary duty to act with care, skill, prudence and diligence
� Prudent Person Standard
� ERISA and UPMIFA
Strategic Considerations
� General economic conditions
� Inflation/deflation
� Make decisions on a total portfolio basis
� Allocate risk and return across the portfolio
� Consider needs and resources to achieve both prudent
spending levels + capital preservation
Establishing Policies
� Investment Policy
� Asset Allocation
� Due Diligence and Monitoring
� Stable Spending Policy
� Smoothing over time: rolling 12 quarters
� Prudent levels of spending vs. asset allocation
� Code of Fiduciary Conduct
� Checks and Balances, no conflicts of interest
Integrating Impact Investing
� Assess portfolio positioning
� Which asset class (es)?
� Carve out % or 100%?
� Time Frame
� Risk and Return Expectations
� Impact Expectations
� Measuring Impact
� Deal flow and other investment opportunities
� Collaborations and Structuring deals
Impact Investments & Themes(Source: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors, p. 64-65.)
Case Studies
� United 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
Collaborations and Co-investors
� Deal Structures can be creative
� Unique risk and return expectations for each investor, collaborations
provide liquidity
� Collaborating for Impact
� Community Foundations
� Private and quasi-public foundations and charities
� Public funds: redevelopment, agency or district funds
� Community development financial institutions
� Conferences, networking and databases
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
Example: Living Cities Catalyst Fund
$55M bank debt
LIBOR + 250-300 bps
$17.3M PRI
3.5%(can be but not always subordinate)
10% grant funded
equity
� The Integration Initiative
� Restricted fund in Catalyst
� $80M invested in 5 cities
� Designated financial
intermediary in each city
� Flexible resources to
integrate change across
• Disciplines
• Geographies
• Sectors
• Funding sources
Impact Investing Resources
Not-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
Impact Investing Resources
� Monitor Institute: www.monitorinstitute.com
� FSG Social Impact Advisors: www.fsg-impact.org
� Other impact investors:
� FB Heron Foundation: www.fbheron.org
� KL Felicitas Foundation: www.klfelicitasfoundation.org
� PRI Makers Network: www.pri-makers.net
� Foundation Center: www.fdncenter.org (PRI Directory)
� Grantcraft: www.grantcraft.org (PRI grantcraft guide)
Biographies
Georgette 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. Georgette's 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).
Biographies
Christa Velasquez, Anne E. Casey Foundation
Christa 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 foundation's $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 Bachelor's degree in Latin American Studies from the University of Chicago
and an MBA from the Yale School of Management.
Biographies
Lauryn Agnew, Seal Cove Financial
With 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 Women's Association of San Francisco.
Appendix
UPMIFAUniform 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, and
8. In general, develop an appropriate investment strategy for the fund and the
charity.
UPMIFAUniform Prudent Management of Institutional Funds Act
� Prudent Person Standard for Non-Profits
� No conflict of interests
� Expectation of higher standard of behavior
� Updates financial concepts
� Total return, portfolio risks, diversification
� Aligns investment policies with spending policies
� Asset allocation strategies, stable spending, purchasing power protection