CATALYTIC CAPITAL – USING GUARANTEES TO UNLOCK PRIVATE CAPITAL FOR IMPACT EPIP Webinar August 2, 2017 EPIP Host: Biz Ghormley Presenters: Hannah Schiff, Tracy Kartye

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Speakers Hannah Schiff, Global Impact Investor Network (GIIN) Tracy Kartye, The Annie E. Casey Foundation

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UsingGuaranteestoExpandImpactHannahSchiff

ResearchManager

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The Global Impact Inves2ng Network

TheGIINisanonprofitorganiza5ondedicatedtoincreasingthescaleandeffec5venessofimpactinves5ngaroundtheworld.

Tohelpacceleratethedevelopmentofacoherentimpactinves?ngindustry,theGIIN:

•  Buildscri?calmarketinfrastructure

•  Supportseduca?onandindustryresearch

•  Convenesaninvestorcommunity.

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Defini2on of impact investments

Impactinvestmentsareinvestmentsmadeincompanies,organiza5ons,projects,orfundswiththeinten5ontogenerateaposi5vesocialorenvironmentalimpactalongsideafinancialreturn.

Corecharacteris?csofimpactinves?ng:

•  Inten?onality

•  Investmentgeneratesfinancialreturnoncapital

•  Rangeofreturnexpecta?onsandassetclasses

•  Impactmeasurementbyinvestorand/orinvestmentmanager

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A diverse market

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2013 2017

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What is a guarantee?

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BankNonprofithousingdeveloper

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What is a guarantee?

BankNonprofithousingdeveloper

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Why use guarantees?

•  AddressrealandperceivedriskstodrawmorecapitalintoimpacRulprojectsandorganiza?ons

•  Enableinvestorstogainexperiencewithunfamiliarsectorsorbusinessmodels

•  Facilitateaccesstocapitalfornonprofitsorcommunitydevelopmentorganiza?onsatfavorableterms

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Where have guarantees been used?

Impactthemesaddressedbynumberofguaranteesn=58guarantees;someguaranteestargetmul1plethemes

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Evidence of limited uptake and scale

•  Mostguaranteesaresmall–under$5million.

•  Mostprojectsorfundstheybackaresmall–under$50million

•  Mostguaranteesarenego?atedattheloanorfundlevel(notprogramma?c).

Guaranteesbysizen=46guarantees

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Wide variety of structures •  Percentageoflossescoveredrangesfrom<10%to100%•  Canincludefull,par?al,ornoup-frontfunding•  Triggersandaccesstocapitalvary

Guaranteesbycoveragelevelandfundingn=44guarantees

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Example 1: Healthy Neighborhoods

•  Two$40millionloanpoolsforbelow-market-ratemortgagesandrenova?oninBal?more.•  Unfundedguaranteefrom3founda?onsandtheMarylandHousingFundcovered10%toplossperloan.•  Guaranteeenabledlowerinterestratesandhigherloan-to-valuera?o.•  352loanstotaling$53.6millionoriginatedfromthetwopools.

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Example 2: Collabora2ve for Healthy Communi2es

•  TwoCDFIsbeganlendinginanewsector–FederallyQualifiedHealthCenters.

•  $5millionunfundedguaranteefromtheKresgeFounda?ononini?alpoolof$25million.

•  Laterenabledfurthercapitalraise,morethandoublingtheamountofcapital.

•  EnabledCDFIstogainexperiencewithFQHCsanddemonstratetheircreditworthiness.

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Thankyou!hschiff@thegiin.org

www.thegiin.org/knowledge-center

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Catalytic Capital – Using Guarantees to Unlock Private Capital for Impact August 2, 2016

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The Annie E. Casey Foundation Overview

• Established in 1948 by Founder of UPS

• Mission: Build brighter futures for all children in the US

• Social Investments one of our philanthropic tools

–  Complements grantmaking

–  4% target allocation of the endowment

–  Place based and thematic investments

ImpactInves,ng

MRIs

PRIs

Traditional Grants

Traditional Market Returns

Expected

Below Market $ Return

Significant

Impact Return

Market $ Return

Intentional

impact return

Market Return

Social factors

considered

RETURN

ESG

Conventional Investments

Socially Responsible

Investing •  Screening •  Shareholder

Advocacy

VEHICLE

Adapted from document provided by The John D. and Catherine T. Macarthur Foundation

Impact Investing – Foundation Assets

Do no harm

Investor interest

expressed

-100% $ Return

Traditional impact returns expected

Impact Investing Across Asset Classes

Mission Related Investments (Market-Rate)

Program Related Investments (Below-Market Rate)

Equi

ty

Subo

rdin

ated

Lo

ans

Priv

ate

Equi

ty

New Frontiers in Mission-Related Investing, F.B. Heron Foundation, 2004

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Portfolio Highlights

($ in millions) Cumulative

Commitments

Co-investments / Leverage

PRIs $63 $603

Strategic PRIs $78 $244

MRIs $11 $636

Deposits $9 --

Total $161 $1,483

Guarantees $64 $137

Access to Capital

Economic Development

Education

Child Welfare

Childcare

Housing & Community Development

SI Program Alignment Based on Gross Commitments (Millions)

Total Assets Committed (Gross): $105,850,779

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Investment •  3 NMTC transactions totaling $50M+ •  Guaranty provided by Casey •  Netted EBDI more than $13M in equity

Results •  $35M in new infrastructure •  Successful relocation of 742 households •  New office and housing construction •  New public school campus •  Retail amenities

Example: East Baltimore New Markets Tax Credits

Mission: Revitalize, re-energize and rebuild the East Baltimore neighborhood

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Investment •  90% guaranty of $750,000 loan •  Bridge government contract negotiations •  Guaranty reduced over time

Results •  Served 2,300 clients with 4,500 children •  Diverted ~ 50% of kids from foster care •  Shortened foster care stays to less than 5 months (average is 11.5 months)

Example: Center for Family Representation

Mission: keep families together by providing families in crisis free legal assistance and social work services

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Casey Approach to Guarantees

•  Seek to structure investments to facilitate achievement of impact and financial return objectives

•  More efficiently utilize Foundation resources –  Unfunded guarantees support positive impact while Foundation

earns market rate return on invested assets –  Charge nominal fee for use of balance sheet

•  Leverage more resources than possible through grant funds –  $1M Healthy Neighborhoods guarantee raised more outside capital

than $25,000 first loss grant

•  De-risks transactions enabling organizations to demonstrate creditworthiness

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Lessons Learned

•  Open communication is critical –  Guarantors, investors, and recipients of capital need to have a common

objective and understand rationale, barriers and investment parameters of one another

•  Underwriting is key to understanding risk and likelihood of financial loss –  Recoverability of payouts can be time consuming and expensive or even

completely unrealistic

•  Be clear about loss tolerance and how payouts will be handled –  If not willing to take a loss on a guaranty, should not provide it –  Guaranty does not have to mean a 100% loss rate

Developing solutions to build a brighter future for children, families and communities

www.aecf.org