The Research behind the Bay Area Impact Investing Initiative

1. The Research behind the Bay Area Impact Investing Initiative Investing for strong financial returns and regional economic impact Lauryn Agnew Seal Cove Financial September 2, 2013 www.baiii.org

2. Today’s Agenda September 2, 2013 • Definitions • Mission Genesis • Research for UWBA Endowment Fund • Implications • Bay Area Impact Investing Initiative • Research and Education • Developing the blueprint • Impacting the Bay Area with our investments

3. Definitions and Beliefs • 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 • Source: Take Action ! For Impact conference pane

4. Impact Investing Themes(Source: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors, p. 64-65.)

5. Aligning Investments with Mission • UWBA Mission: • To cut poverty in the Bay Area by ½ by 2020 • Investment Committee mission: • To study and recommend a process and options • For building a diversified portfolio • That offers comparable risk and return • That aligns with the poverty mission and Bay Area focus

6. Impact Investing Process: UWBA Research Process • Articulate Mission and Values • Create Impact Themes • Define Impact • Develop Impact Investing Policy • Generate Deal Flow • Analyze Deals and Evaluate Impact • Source: Solutions for Impact Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors • UWBA Goal: • Reduce Poverty in the Bay Area by ½ by 2020 • Community Development, Affordable Housing, Job Training, Employment • Quantify jobs and growth, unemployment rates decline, affordable housing units built, transportation funding, etc.. • Develop Investment Policy: asset allocation, liquidity, risk budgeting, spending, monitoring, etc. • Gather universe of ESG/Impact investment managers in all asset classes, model portfolios • Perform due diligence , monitor financial results, and social impact, test for comparable performance and risks

7. Building the Model Equity Portfolio • Desired Characteristics: • Transparency • Low fee • Rules and Process Based • Risk and Returns must be competitive to a traditional market portfolio • Indirect impact expected from public equities • Consider SRI and ESG screens • Shareholder activism

8. Equity Universe • BBACAX – Bloomberg Bay Area Index • 383 companies headquartered in the Bay Area • Cap weighted, Inception 2003 • Characteristics of the universe: • Top 5 stocks = 50% of portfolio • Apple, Chevron, Oracle, Google, Wells Fargo

9. Model Equity Portfolio Structure • Model portfolios: • Cap Weighted • Equal Weighted • Optimized • Tracking Error to S&P 500 BBACAX +15 BBACAX 5.39% 6.17% 15.68% 15.81% 2.68% 2.82%

10. Model Sector Allocations

11. Analyzing the Model Portfolio • Tracking Error • Benchmark: Russell 3000 • Market cap range • Sector exposure • Add other large employers and donors to universe • Roche (Genentech), Comcast, Franklin Templeton, Marriott, ATT, Bank of America, UPS, Macy’s, Costco, Nordstrom, Western Digital, and others • Add but underweight more non-HQ Bay Area companies/employers

12. Adding Social Criteria to the Model Portfolio • Objective process for Social Screens • Choosing screens • Weighting Criteria • Customized Scores • Data elements identified • Testing for impact • Geographical + Social screens • Tracking Error • Our thanks to Aperio Group and IW Financial

13. Customized Social Screens • 25 Categories – Focus Group consensus recommendations • Alignment with drivers of poverty reduction

14. Social & Geographic Criteria • Focus Group consensus sample criteria recommendations • Weightings: High is 2x Medium, Medium is 2x Low • Exclusions: Gambling (use 20% threshold) • Positive Scoring: based on objective data • Job Creation (High): defined by Universe of Bay Area employers

15. Tracking Error & Model UWBA Social Scores • Objectives to balance and trade-off: • Maximize our custom formula for ESG scores • Determine a minimum portfolio Social Score • Minimize tracking error to Russell 3000 • Determine a maximum tracking error – risk tolerance • Geographic focus: Bay Area only or broader • Bay Area companies as % of portfolio • 100%, 75% or 50% of the portfolio must be BBACAX

16. Sample Portfolios:

17. Choosing the parameters for the Model • Custom ESG Scores, Tracking Error, Geographic Focus Model UWBA Custom ESG Score Tracking Error vs. Russell 3000

18. UWBA Model Portfolio “Impact Bay Area” • $4 million: 65% Equities, 35% Fixed Income • Benchmarks: R3000, Barclays Aggregate • Fixed Income: Bay Area bonds • Impact Report: to be developed • Someday? • A “Bay Area Impact Investing” family of funds: • Stocks, bonds, infrastructure, real estate, private equity

19. Model Equity Portfolio Performance • January 1, 2011 – July 31, 2013 • annualized cumulative • Model 16.29% 47.69% • Russ 3000 14.33% 41.34%

20. Model Fixed Income Portfolio • Community Capital Management • CRANX: $1.5 billion, intermediate term, investment grade fixed income • Benchmark: Barclays Aggregate • Earmarked bonds for CRA credit • Geographically focused on SF Bay Area • Taxable Municipal Bonds, Redevelopment Agency • Bay Area Small Business Administration bonds • Bay Area GNMA and FNMA Affordable Housing bonds • Salvation Army (corporate) • CDFI deposits in Bay Area • * CRA = Community Reinvestment Act ** CDFI = Community Development Financial Institution

21. Implications • Market rates of returns + positive social impact can bring fiduciary assets like defined benefit plans and community and private foundations to impact investing • Infrastructure investing • Transportation oriented affordable housing developmentwww.bayareatod.orgwww.grandboulevard.org • Long term funding + source of liquidity • Public/Private Partnerships • Pledge 1-2% to local/regional investments

22. The Challenge • The San Francisco Bay Area, while robust and wealthy, needs investment • Local, deep pockets are invested globally • Regional investment opportunities seek investment dollars

23. The Solution: Working Together • Educate the community about needs and opportunities • Encourage partnerships, pledges and investments • Enable investments through investment vehicles, collaborations and opportunities

24. Bay Area Impact Investing Initiative • Impact Investing is about intentionally aligning (a portion of) your investments with your passions • Proactive and influential • Prudent fiduciary standards • Provides momentum to solution development • Investing in our own backyard • Investing to keep the Bay Area competitive and thriving

25. Community Investing

26. Family of Funds Model

27. Equity fund Bond fund Real Estate fund Private Equity, VC Infrastructure fund Employment, ESG factors, transparency Affordable housing, transit, community + micro loans Sustainable building, redevelopment, remediation Job creation, urban development, innovation Transit, water, schools, hospitals, communications Target Impacts

28. Community Foundations Quasi-public and private foundations and private wealth Public Retirement plans (defined benefit) Endowments Private and corporate retirement accounts GOAL: 1-2% of this >$100 billion market Community Foundations: Silicon Valley, San Francisco, Marin, East Bay, etc. United Way Bay Area, Silicon Valley United Way, Archdiocese etc. Corporate and private foundations and plans: Hewlett, Packard, Oracle, Chevron, Wells Fargo, E-Bay, Apple, Google, all IPO beneficiaries Employee Retirement plans at San Francisco, Contra Costa, Marin, San Mateo, San Jose, Alameda, CalPERS, CalSTRS Endowments: UC Berkeley, Stanford, Golden Gate, UCSF, SI, Santa Clara, etc IRAs, Roths, 401k and other defined contribution plans Private trusts, family offices, deferred and savings plans Target Asset Owners

29. Investment Policies & Impact Goals • Equity Fund: • Impact: Influence and change corporate behavior • Support employment, regional economic prosperity • Investment Policy: • Expect market-like risk and return • Develop Bay Area focus, criteria and process • Research investment advisors • Passive or enhanced index • Active ESG screens • Shareholder activism through engagement and proxy voting

30. Investment Policy & Impact Goals • Fixed Income Fund • Impact: support regional companies and projects • Provide liquidity and scale to promote regional economic development • Investment Policy • Expect market-like risk and return • Develop Bay Area focus and criteria • Corporate bonds • Municipal bonds • Community Development Financial Institutions (CDFI) • Deposits and loans

31. Investment Policy & Impact Goals • Real Estate Fund • Impact: acquisition & development of real assets • Strategic acquisition and development to promote regional economic prosperity • Investment Policy • Expect market-like risk and return • Develop Bay Area focus and criteria • Land acquisition • Rehabilitation and remediation • Green & sustainable building • Public private partnerships

32. Investment Policy & Impact Goals • Infrastructure Fund • Impact: support regional projects • Provide liquidity and scale to leverage public infrastructure subsidies • Investment Policy • Expect market-like risk and return • Develop Bay Area focus and criteria • Affordable Housing and Transit Oriented Development Loan Funds, regional real estate & transit investments • Community Development Financial Institutions (CDFI) Loan Funds

33. Investment Policy & Impact Goals • Private Equity Fund • Impact: new company formation and job creation • Provide early investments in new innovative companies • Investment Policy • Expect job creation, high returns for patient capital • Develop Bay Area focus and criteria • Private equity fund due diligence • Assess economically distressed regions • Public private partnerships

34. Bay Area Impact Investing Initiative • Our Mission: • To develop the blueprint for scaling impact investing with a Bay Area focus • Our Vision: • To increase the quantity and effectiveness of impact investing in the Bay Area • Our Method: Research and Education

35. Biography • Lauryn Agnew • With nearly three decades of experience in developing and implementing strategies in the institutional investment industry, Lauryn Agnew serves 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 through her company Seal Cove Financial (www.sealcovefinancial.com) . • Currently, Lauryn is a trustee on the Board of the San Mateo County Employees’ Retirement Association (SamCERA), a defined benefit plan with $2.5 billion in assets. She is the 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 recently authored a research paper about Impact Investing for small place-based fiduciaries, which is posted on the website of the Federal Reserve Bank of San Francisco. As an advocate for impact investing strategies, she is working to develop a Bay Area Impact Investing Initiative for institutional asset pools. • Lauryn was born in Wyoming and grew up in Montana. She has a BA 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.