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An Introduction to Impact Investing

Georgetown Webinar August 23, 2011

Georgette Wong

CEO, Correlation Consulting

CEO, Take Action! Conference Series

georgette@correlationconsulting.com | www.impactinvestingconference.com

The information provided does not constitute investment advice and it should not be relied on as such. All material has been obtained

(2)

What Is Impact Investing?

 Impact investing is similar to, but somewhat different from:

• SRI, ESG, Triple Bottom Line investing, Long-Term Investing

 Main differentiators:

Expectation of measurable tangible social and/or environmental outcome

• Across all asset classes

ENVIRONMENTAL:

Clean Tech Climate

Conservation Environment

ESG/Sustainability Water

Impact investing is actively placing capital in businesses and projects that seek to generate market-rate financial returns while also creating

measurable social and/or environmental impact to address some of the world’s most pressing challenges.

SOCIAL:

Agriculture

Community/Economic Dev.

Culture

Demographics Education Fair Trade

Food Systems Gender Equality Health/Healthcare Housing

Inclusive Finance Job Creation

Microfinance Racial Equality Sustainable Cities

(3)

Two Views of the World

 Making Money ≠ Doing Good

 Short-term financial results

 Talking about money rarely

includes values; training in finance is values-neutral.

 Investments dictate the Natural World

 Groups work in silos to solve issues

Predominant Up & Coming

 Making Money = Doing Good

 Judge impacts for our

grandchildren’s children – and more

 Money reflects values & worldviews

 Natural World dictates the Monetary World

 Groups work together to solve issues

Government Business (&

Investments)

Philanthropy (& Not-For-

Profits)

(4)

1 Source: http://www.mckinsey.com/mgi/publications/gcm_sixth_annual_report/executive_summary.asp(2009)

2 Source: http://www.us.capgemini.com/services-and-solutions/by-industry/financial-services/solutions/wealth/worldwealthreport/(2010) 3 Source: http://www.citigroup.com/transactionservices/home/sa/2011q1/imr/docs/imr15_mag_int.pdf(2010)

4 Source: http://www.nytimes.com/interactive/2010/02/01/us/budget.html(2010)

5-6Source: http://foundationcenter.org/gainknowledge/research/pdf/fgge10.pdf(published 2010; 2009 estimated stats) 7 Source: Estimate, GPS Capital Partners, LLC (2010)

Leverage is Key

US Foundation Assets

$583.4 Billion5

US Foundation Giving

$42.9 Billion6

Global Capital Markets

$178 Trillion1

US Foundation Mission Investing

$3 Billion7

High Net Worth

$39 Trillion2

Global Pension Plans

$23 Trillion3

US Budget

$3.69Trillion4

US Foundation Assets

$583.4 Billion5

(5)

A Hierarchy of Impact

Meyer Memorial Trust

“Maximizing Impact”

Mission-Related

Market Rate Investment Strategy

Presented at 2009 Take Action!

(6)

Correlation Consulting

Focus on above-market rate financial returns

Non-Profit Education (2007) For-Profit Consulting Services (2011)

 Assist Asset Owners and their Trusted Advisors on the following:

 Clarification of the field of Impact Investing

 Identification of clients’ desired areas of impact

 Introduction to like-minded

investors and potential partners in impact.

Take Action! Conference Series

 By Invitation only

 Non-solicitation annual event

Market Research

 Identify key trends

 Assess supply and demand

(7)

Take Action! Conference Series

Our Signature Annual Event

 By-invitation only, non-solicitation

Peer Group of Asset Owners (60-70% of the audience) Families, foundations, major pension plans, corporations

 Focus on investments, specifically premium (above-market rate) financial returns

 Neutral, Third Party

 Practical, Action-oriented

 Since 2007, over $300M in new commitments made (low estimate)

98%+ fulfilled on their goals for attending (3 years in a row)

98%+ say they would attend again (3 years in a row)

 Next event is Spring 2012 (East Coast)

Year Total Participants Assets Represented Location

2011 125 $4.5 trillion San Francisco

2010 125 $4.1 trillion Boston

2009 145 $2.4 trillion San Francisco

2008 100 $2.7 trillion San Francisco

2007 100 $80 billion San Francisco

(8)

Selected Participants

Motivations

Financial

Looking for outperformance

Reduce investment risk Social/Environmental

Alignment with values

Use all existing assets – financial and non- financial

Find like-minded pioneers Orient the financial markets towards the long-term

Pension Plans

Many Individuals & Families Foundations

Asset Managers

Investment Consultants

Government Agencies

(9)

Correlation’s Asset Owner Study

Return of Capital to Premium Financial Returns

 Advisors

Sherwood Dodge, CEO, GE Equity

• Lala Faiz, Senior Partnerships Advisor, Office of the Secretary of State

• Janice Hester-Amey, Portfolio Manager, CalSTRS

• Rob Lake, Director of Strategic Development, Principles for Responsible Investment (UK)

Bonny Landers, River Star Foundation (Hong Kong)

Jean Oelwang, CEO, Virgin Unite (UK)

• David Wood, Institute for

Responsible Investment, Harvard University

 Institutional Investors

• Individuals & Families

• Pension Plans

• Corporations

• Development Finance Institutions

Core Questions

• What are current global best practices?

• How can we unleash more capital?

• What distinguishes a “good investment” from an impact investment?

 Launch (Fall 2011)

• PRI in Person

• State Dept. Forum

(10)

Current Product Landscape

Products are continually emerging

“Impact First”

Low High

High Net Worth

& Institutional Products Retail Products

Generation Investment Management

(25 – 30% Target IRR) Lyme Northern Forest Fund (22% Target IRR)

African Agriculture Fund (17% Target IRR)

Microvest Short Duration Fund

(LIBOR+) Aperio Public

Impact Portfolio (Market Rate)

Triodos Products (3 – 6% Returns)

Root Capital (2.5% Returns)

Acumen Funds (0% Returns)

RSF Social Finance Notes

(1% Returns) Calvert Social Finance Notes

(1 – 2.5% Returns) KIVA Giving Loans (0% Returns)

RSF Social Finance Notes (1% Returns)

Calvert Social Finance Notes (1 – 2.5% Returns) TriLinc Global

Impact Investment Funds

Target launch Q4 2011

(6% Target Yield, 8-10% Target IRR)

Expected Return on Investment

“Financial First”

(11)

The Field is Rapidly Developing

Foundations

Pension Plans

Universities

Corporations Religious

Groups Private

Investors

UNCOORDINATED

Asset Owners Are Beginning To Coordinate

Financial Consultant

Financial Consultant

Financial Consultant

Too Few Quality Fund Managers Financial Consultants

Need Training & Tools

Fund Manager

Fund Manager

Fund

Manager Consultants

Entrepreneurs

End Beneficiaries Aren’t Typically Consulted

Industry studies and general market research demonstrate a current demand for Impact Investments of approximately

$120 billion

1

growing in the next ten years to $1 trillion

2

(12)

Asset Owners Are Key

Foundations

Pension Plans

Universities

Corporations Religious

Groups Private

Investors

UNCOORDINATED

Yet, Asset Owners are particularly key, as they…

Financial Consultant

Financial Consultant

Financial Consultant

…incent fund managers/

entrepreneurs to create custom products

…incent financial consultants

to seek education (…or they move on)

Fund Manager

Fund Manager

Fund

Manager Consultants

Entrepreneurs

…can ensure end beneficiaries

are included There is an opportunity for leadership from all parts of the ecosystem.

Increase in unique partnerships, collaborations and product

structures among various asset owners

(13)

Georgette Wong

President, Correlation Consulting

CEO, Creator & Curator of the Take Action! Impact Investing Conference Series georgette@correlationconsulting.com|650.759.4769

• Involved with Impact Investing since 2007, SRI since 2001, and civil rights since 1992.

• Currently assisting the US State Department to catalyze impact investing across the government, private and public sectors.

• Over the last eighteen years: 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.

• Founded the Take Action! Impact Investing Conference Series in 2007. Just celebrated 5 years of catalyzing impact through Take Action! Planning for the 2012 conference.

• Currently engaged with the Office of The Secretary of State and the United Nations-backed

Principles for Responsible Investment on a study to understand activity of asset owners in impact investing and how to free up more capital for impact investing.

• Previously engaged with 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 sectors.

Most recent work 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.

• MBA, UCLA Anderson; BA, magna cum laude, Amherst College

References

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