Transcript NCIF Social Performance Metrics

SRI Investing and CDFIs
Moderator:
Panelists:
March 2, 2009
Saurabh Narain
National Community Investment Fund
Mark Regier , Mennonite Mutual Aid
Tracy Kartye, The Annie E. Casey Foundation
Art Stevens, Calvert Foundation
Outline
 Total Return = Financial Return + Social Return
 National Community Investment Fund
 MMA Praxis Funds
 Annie E. Casey Foundation
 Calvert Foundation
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Total Return = Financial Return + Social Return
What is “social return”? Can we quantify it? Will Investors use this
quantification to meet total return hurdles?
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Inputs, Outputs, Outcomes and Impact
Theory of change
INPUTS
What
you
put in
ACTIVITIES
What
you do
OUTPUTS
OUTCOMES
What did
you
produce?
What
changed?
A deliberate analysis of ‘interventions’ is critical in
generating long term impact in distressed communities.
IMPACT
What
would NOT
have
happened
anyway?
National Community Investment Fund
Quantitative Approach supplements Qualitative Approach
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NCIF Social Performance Metrics
Core Metrics
1. Development Lending Intensity (DLI – HMDA )
% of housing loans originated in investment areas (IA)/total housing loans
2. Development Deposit Intensity (DDI)
% of branches in CDFI investment areas/total branches
Additional Metrics
1. Adjusted Development Lending Intensity (DLI - HMDA)
DLI minus % of ‘high rate’ loans; High rate loans = 3% over index, per HMDA
2. DLI – Low Income Borrowers
% of HMDA loans that are made to low income people
3. DLI - Equity
% of HMDA loans originated in investment areas/total equity of the bank
4. DLI -Highly Distressed Census Tracts
% of HMDA loans originated highly distressed census tracts
NCIF has information on all metrics starting 1996 and can construct time series and peer group analysis
NCIF Social Performance Metrics
Search for Potential Community Development Banking Institutions
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CDFI
MDI
Threshold
Development Lending Intensity - HMDA %
90
Quadrant #2
Quadrant #1
Quadrant #4
Quadrant #3
80
70
60
50
40
30
20
10
0
0
10
20
30
40
50
60
70
80
90
100
Development Deposit Intensity %
Legend
CDFI
MDI
Threshold
Description
Certified CDFIs
FDIC Minority Depository Institutions
NCIF CDBI Threshold
DLI-HMDA
Avg
DDI Avg
60.3%
73.6%
45.5%
60.2%
40.0%
50.0%
Threshold
Between 300 and 1400
banks in Quadrants 1-3
NCIF Model CDBI Framework
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Operate in highly distressed areas where:
Poverty between 27.4% (median) and 55.1%
Unemployment between 8.8% (median) and 32.3%
Family income ratio between 25.5% (median) & 64.4%
Offer products suited to LMI communities including
credit builder loans, alternatives to pay day loans, ITIN
mortgages, church loans.
Offer financial services for under-banked like low
balance/low OD rate deposit accounts, debit, credit or
stored value cards, Individual Development Accounts.
Offer financial training and literacy, budget counseling,
VITA services etc
Enters into partnerships with local public and non profit
organizations for generating long term economic
development impact.
CDBIs provide holistic economic development impact in low to moderate income communities
National Community Investment Fund
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NCIF is a non-profit private equity fund focused on:
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Significant investment track record; fund established in 1996
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$25 million in equity and $68 million in NMTC capital
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Cumulatively invested in 37 institutions in equities/debt
 73% of institutions are minority-focused, 68% of dollars are in minority-owned institutions.
 81.1% of institutions in urban markets
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Unparalleled impact - $3 billion in more than 74,000 development loans from NCIF investees
Thought leadership
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Providing patient capital to the Community Development and Minority Banking Institutions industry;
Facilitating the flow of deposits and other funding sources to the industry; and
Building the asset class of Community Development and Minority Banking Institutions.
NCIF Social Performance Metrics that are being adopted by investors and the banking industry.
Advised by ShoreBank Corporation – oldest CDFI with over $2.4 billion in assets
Mennonite Mutual Aid
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MMA & Social Investing
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Stewardship Agency of Mennonite Church USA
Helping institutions and individuals combine faith and finance through wide range
of diversified insurance and financial services
Nearly 65 years in faith-based, socially responsible investing
$1.55 billion in assets, all SRI
MMA entities:
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MMA Praxis Mutual Funds (7)
Mennonite Foundation (donor directed, institutional investment management)
MMA Association (individual and group health insurance)
MMA Trust Company (individual, institutional asset management)
Mennonite Financial Federal Credit Union (banking services)
MMA Community Development Investments (
Organizational objective: Provide competitive range of financial services with the
highest possible social impact
Personal objective: Seek to bridge divide between “socially-targeted” assets and
traditional investments
Holy Grail: Impact + Financial Opportunity
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“Metrics for metrics sake” not a top priority
Interested in metrics that drive success and substantiate investment model
State of the art =
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Get a bigger piece of the pie, not just a bigger pie
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Don’t overlook SRI portfolios that are socially motivated but require traditional financial
performance/structure
Need a garden hose, not an eye-dropper
Billions await effective, well-structured products that combine demonstrable impact and
functional financial returns
Concessionary rates?—make the case
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Easily summarized
Comparable across industry
Relate--and differentiate--within broader investment field
Include impact narrative—story matters
Why? How? Who?
Today—use metrics to demonstrate non-correlation (superiority?) to traditional
investment products
What you can do
1. Understand what matters to the SRI investor
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Market pressures (returns or impact or both)
Breadth as well as depth
Ability to go to scale, efficiently
Geographic and/or social targeting
Interaction of social metrics and financial performance
2. Look for new places to fit in SRI portfolios
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Socially-targeted allocations are limited
3. Use social metrics to make the financial case
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Capitalize on current market environment
Leverage skill as a financial, as well as social impact, institution
4. If seeking concessionary rates, be prepared to:
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Document impact (“serving the poor” is not enough)
Demonstrate need (why can’t this be done without concessionary rate)
Provide simple but meaningful social metrics
5. Make retelling the story easy
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Simple, meaningful social impact metrics
Readily-available, regularly-updated impact narratives and photos
Annie E. Casey Foundation
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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
 Casey Places
 System and Service Reform
 Strategic Initiatives
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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
 Casey Places
 System and Service Reform
 Strategic Initiatives
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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
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AECF Investment Types
 Program-Related Investment
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Direct link to mission/program
Primary purpose to achieve social impact
Below-market financial return
Any financial instrument
 Mission Related Investment
– Direct link to mission/program
– Market rate
– Any financial instrument
 Mission Related Deposit
– Insured
– Market rate
– Builds relationship between financial institution and program/site
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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 micro and small business intermediary
 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
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Geographic targeting to AECF neighborhoods of
interest
Grant support for staffing/operations
Financial and programmatic requirements
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Financial covenants
# of loans and average loan size
Job creation
Demographic information
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Example: Bankers Trust
 AECF deposit in recognition of the strong partnership
between Bankers Trust and the Jim Casey Youth Opportunity
Initiatives (JCYOI) Program in Des Moines
 Collaborate on the Opportunity Passport™ a financial program
for youth transitioning out of foster care
 Why it’s a good deal:
 The bank actively facilitates relationships with participating
youth and provides impact data directly to JCYOI
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$100,000 market rate CD renewed twice since 2005
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JCYOI staff evaluate relationship and recommend renewal or
withdrawal of deposit prior to maturity
Impact data include: # of IDA accounts and total $ invested
Financial statements and CRA report considered in investment
decision
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AECF SI Results to Date
 Financial results
 Expected annual return of 3.2% for entire portfolio (mostly PRIs)
 All investments current with no capital losses
 Currently best performing portfolio in endowment
 Leverage/co-investment
 $305 million in direct co-investment
 $109 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
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AECF SI Results to Date
SI Impact Results as of 12/31/07
Total
Projected
Charter school slots
Actual to
date
(12/31/07)
6,300
2,065
175
121
2,174,082
414,982
Jobs created
3,909
3,314
Housing units developed
11,470
1,647
2,455
1,641
301
79
Child care slots
Commercial space developed (sq ft)
Affordable housing units developed
Small businesses financed
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Demonstrating Impact
Tie impact directly to investor social goals
Accurately track data that is a direct result of financing activity
# housing units financed broken out by affordability
# jobs created and associated benefits if any
Ultimately want to be able to identify
What was done?
How well was it done?
Is anyone better off?
Have solid track record of related financing activity
e.g. experience as an affordable housing lender
Don’t forget financial performance!
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Calvert Foundation
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Balancing Head and Heart in a Recession
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Current Trends from Social Investors
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Current Concerns for Mainstream Investors
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Recovering from the initial shock / Forced to rethink strategy
Community Investment still carve out or falling in PRI, MRI space
Shifting focus from “Social” to “Responsible” and “Sustainable”
Looking for Outcomes as well as Outputs
 Using Poverty or Demographic data to link project information
 “Green” provides a different set measurables
Failure of Alternatives is leading larger institutions to look beyond Fixed Income for Impact
Avoiding Hot Money when short term rates are so low
 Low Rates means Social Impact Comes for “Free” to Investors
Still relate local to unsophisticated
Opportunities for Mainstream Investors
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Big is not beautiful
Using the opportunity to build relationships / Explain your strategy
Media markets are hurting- Marketing has never been cheaper to tell your story
Brokered CD’s
Calvert Note Model
Securitizing a loan pool for convenient and safe access to CDFI’s
Investors
Investor
Capital
Institutional
Investors
Donor
Capital
Individuals
Foundations
Faith-Based
Nonprofits
High Net Worth
Corporations
CCI Note
$165 million
Loan Pool
Diversified &
ProfessionallyManaged
Sr. Sub Debt
Jr. Sub Debt
Capital Support
Balance Sheet
Partners
Affordable
Housing
Microfinance
Community
Development
Social
Innovations
Contacts
Mark Regier
Director, Stewardship Investing
MMA
(574) 533-9511, [email protected]
Tracy Kartye
Senior Social Investment Analyst
Annie E. Casey Foundation
Art Stevens
Relationship Manager, Calvert Foundation
(301) 280-1365 / [email protected]
Saurabh Narain
Chief Fund Advisor, National Community Investment Fund
(312) 881 5826/[email protected]
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