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Socially Responsible Investing and CDFIs

Socially Responsible Investing and CDFIs. Maximizing Your Investment October 14, 2009 Annie E. Casey Foundation. Annie E. Casey Foundation. Established in 1948 by the founder of UPS Mission is to build better futures for vulnerable children and their families

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Socially Responsible Investing and CDFIs

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  1. Socially Responsible Investing and CDFIs Maximizing Your Investment October 14, 2009 Annie E. Casey Foundation

  2. Annie E. Casey Foundation • Established in 1948 by the founder of UPS • Mission is to build better futures for vulnerable children and their families • Geographic and programmatic initiatives • Center for Promoting Family Economic Success • Family centered community change • Center for Effective Family Services and Systems • System reform • Direct services

  3. AECF Approach and Philosophy • Social investments complement grantmaking and provide an additional philanthropic tool • Seek double bottom line—financial and social return • Seek to fill a financing gap • $100 million (~3%) allocation of endowment • Different risk profile from other foundations • Place based and thematic investments • Flexible terms but always invest through financial intermediaries • Leverage/co-investment requirement • Influence other investors and share risk • Systems in place to track financial and social returns

  4. Example: Coastal Enterprises, Inc. • AECF Rural and CFS family economic success strategy • “earn it, keep it, grow it” • CEI successful community development financial institution (CDFI) and community development corporation (CDC) • Finance and develop business enterprises and affordable housing • Provide related support services such as counseling and technical assistance • $2M loan at 3% for 10 years • $10M Northern Heritage Development Fund targeted to Maine’s rim counties • Investment goals for NHDF • Create 1,275 jobs • Finance 160 businesses • Develop 150 affordable housing units • Leverage additional $30M • Why it’s a good deal: • Experienced intermediary and strong program fit • CEI active participant in RuFES and partner with CFS to strengthen EITC campaign

  5. Foundation Perspective: Investment Tools Program Related Investments Endowment Investments Grants Programmatic Returns Financial Returns

  6. PRI vs. Grant • Use a grant when • Affordability gap vs. financing gap • Extremely high risk level • Smaller $ amounts • No repayment source/repayment relies on fundraising • Inexperienced management/leadership team • Use a PRI when • True financing gap • Reasonable risk level • Larger $ amount • Obvious and reliable repayment source • Stable competent management and board leadership

  7. Social Investment Continuum Program Related Investments (Below-Market Rate) Fixed Income / Bonds Public Equity / Stocks Cash / Deposits Private Equity Guarantees Subordinated Loans Equity Cash / Deposits Senior Loans Mission Related Investments (Market-Rate) Source: New Frontiers in Mission-Related Investing, F.B. Heron Foundation, 2004

  8. Example: ACCION Texas • AECF focus on improving family economic success in San Antonio • Interest in creating/sustaining micro and small business • ACCION Texas, an established intermediary that makes micro and small business loans • Why it’s a good deal: • Investment goals fit tightly with program goals and strengths of intermediary • Initial $500,000 loan at 3% for 5 years with follow-on investment of $500,000 in year 3 • Geographic targeting to AECF neighborhoods of interest • Grant support for staffing/operations • Financial and programmatic requirements • Financial covenants • # of loans and average loan size • Job creation • Demographic information

  9. AECF SI Results to Date • Financial results • Expected annual return of 3.3% for entire portfolio (currently mostly PRIs) • All investments current with no capital losses • Leverage/co-investment • $320 million in direct co-investment • $113 million leverage from guarantees • Project financing generates significant additional indirect public and private leverage • Influence • PRI Makers Network • More for Mission Campaign • Individual investments and program/topic areas

  10. AECF SI Results to Date

  11. The Benefits • For Foundations • Flexible • Feasibility • Size • Recyclable • Leverage • Pay-out • For CDFIs • Capacity building • Self-sufficiency • Strength • Credibility • Relationship

  12. The Downside • Can be complex and time consuming • Requires programmatic and financial skills • Legal fees and other transaction costs • Negotiations and structuring potentially adversarial • Social impact difficult to measure/ quantify • Long-term reporting and monitoring • Not a grant = repayment obligation

  13. SI Lessons • Every investor has a different entry point • Every investor has different definition of mission-related • Education and capacity building for AECF staff, partners • Link to program/mission critical • Not every idea/organization appropriate for an investment • Deals can take time to develop • Grant support sometimes necessary to do deal • Leverage takes time and money • Ongoing management needed to maintain relationship (financial and programmatic)

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