Transcript Measuring the Total Return

Extracting the Value of Social Return Reporting
Pension Funds: Investing to Build Strong and Sustainable Communities
Harvard Law School, June 10 2008
Research Funded by Kauffman Foundation
BACAF Investment Profile
Institutional Investors: Public Pension Funds
Funds of funds
18 Private Equity Funds
~120 Portfolio Companies
• Owned (led) by women or minorities;
• Located in/employing residents of, LMI areas;
• In areas with limited access to capital;
• Serving minority markets.
Investment Profile Differs From Traditional VC….
•More Traditional Business Sectors
•Geographic Diversity
< $1M
$1-10M
•Company Sizes Range Smaller
….Financial Return Objectives Do Not.
“… financing MBE’s offers high returns due to the
existence of an underserved market.”
- Bates and Bradford, 2007
Underserved Market Investing Has Ancillary Social Returns
 Employment
□ Minority-owned firms employ 4.7 million workers.
□ Minority-owned firms more likely to hire minorities.
 Entrepreneurship
Minority & Women owned businesses under-represented and under-capitalized.
 Economies
□ Inner City & Rural firms create jobs where most needed. For example, "Inner
City 100” employ 73,000 (nearly half inner-city residents).
 Environment?
BACAF Results
# of funds invested
2005
6
2006
14
Total fund size
~$1B
# of companies
24
60
5,027
13,508
# employees
~$2.2
2007
18
~$3.8B
113
12,636
75% reporting
The data presented on this slide is incomplete and preliminary, prepared for purpose of this presentation only.
Underserved (All Categories)
Entrepreneurship
% minority controlled
% women controlled
Economies
% in LMI communities
Underserved market
Employment
% minority
% female
% health insured
% retirement
70%
32%*
4%*
35%
9%**
34%**
42%**
50%**
33%**
The data presented on this slide is incomplete and preliminary, prepared for the purposes of this presentation only.
*91/120 companies ever funded reporting.
***About half of active companies reporting (between 53 and 65 out of 113 active portfolio companies
Lessons to Learn
Ways to address Fund resistance
 Confidentiality
 Added work
 Consistency? Accuracy? Bias?
Practical Matters




Tradeoffs between realistic and ideal.
Who pays?
How long & often? Exits/Post-Exit? Financial Results? Leverage?
Conventions for analyzing heterogeneous investments
How to realize value from the information?
 Build a meaningful benchmark; Will there ever be standard(s)?
 How can social impact reporting attract more, scale capital?
Moving from custom measurement to…
• Define a space or policy
• Screen investments – to “get in the room”
• Report - Tracking & documenting clearinghouse(s)
• Benchmark relative performance
• Quantify impact – impact policy, drive innovation
Define Screen Report Benchmark MeasureImpact
Financial
Investor Return Priority
Attract Scale Capital -Identify benefits without the capital
having to do much new work.
Output
Efficient, Standardized
Social
Draw innovative capital –
human and financial –
into high-impact activities.
Indicators
Impact
Specialized;
Hard to replicate;
Matches specific programs
“What are we after here - more capital or better results?”
-Betsy Zeidman
• Either way, measurements are key.
• Different forms of measurement have different values to
different investors from pension funds to foundations.
• From the institutional, scale-investor standpoint, is it a…
1.High Level ETI Classification?
2.Rating System?
3.Specialized Impact Analysis?