FromBlendedValuetoImpactInves4ng:CatalyzingFinancialServicesforEnterprisingNonprofits

EventReportDecember3rd2009

Introduc4ons:Dr.IlseTreurnicht,CEOMaRSChair:TimDraimin,Execu4veDirector,SiGNa4onal

Speakers:TimBrodhead,CEO,JWMcConnellFamilyFounda4on

JaneAmbachtsheer,GlobalHead,RI,MercerConsul4ngJedEmerson,Partner,UhuruCapitalManagement

NoraSobolov,Intersol

PrefaceCAUSEWAY

Causewayisana4onalcollabora4onhostedatMaRSandanimatedbySocialInnova4onGenera4on(SiG)andthemembersofoursteeringcommiWee.Causeway’sobjec:veistofasttrackCanada’sadop:onofsocialfinance,ensuringthereisahealthymarketplacesupportedbymainstreamfinanceins:tu:ons.Highligh4ngit’sinauguralyearCausewayhasproducedaresearchstudyaptlynamed“BuildingtheCaseforSocialFinanceinCanada”throughconsulta4onswithseveralkeyfinancialservicesleadersandhavehostedanumberofoutreacheventsaimedtobringsocialfinancetotheforefrontoffinanceinnova4on.

Ourmostrecentevent,“FromBlendedValuetoImpactInves4ng”wasconvenedaroundourguestJedEmerson,thethoughtleaderinblendedvalueinves4ng,inordertodiscusswaysthatmainstreamfinancialins4tu4onscansupportthegrowingcapitalrequirementsofCanada’senterprisingnonprofits.Theobjec4veofthismee4ngaswellassubsequentdiscussionsistodesign,develop,andfasttracktheimplementa4onoffinancialtoolsaimedatservicingthespectrumofblendedvalueenterprise.

Manythankstothepar;cipa;ngspeakersandeveryoneatMaRS,SiG@MaRS,andSiGNa;onalfortheirindispensablehelpwiththisevent.

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Execu4veSummary

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Nonprofitsectororganiza4onsarelookingtoalterna4vesourcesofcapitaloutsidetheirtradi4onalfundraisingapproaches.Atthesame4me,investorslookingforbothfinancialandsocialreturnsoninvestmenthavebeenconstrainedintheirabilitytodosobytheinvestmentvehiclesavailabletothem.Theareaofhigheconomicandhighsocialvalueofferedbyblendedvaluestrategyoffersanapproachtoprovidingthesetools.BoththeUK’sVenturesomeandtheUS’sNonprofitFinanceFundaremodelsthatwecanlearnfrominCanada.Approacheslikethesealsoallowfounda4onstoadvancetheirmissionsthroughtargetedinvestmentoftheirassets.

Execu4veSummary

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Throughdiscussionsamongthepanelistsandpar4cipantsanumberofkeyopportuni4esfornextstepswereiden4fied.Theseincludetheresearchand/orcrea4onof:

1)  ALoanandInvestmentFund2)  ACommunityInvestmentVehicle3)  AFundofFundsProduct4)  ASocialVentureFund5)  AProgramRelatedInvestmentFund

ItwassuggestedthatCausewayserveasanenableroftheseac4vi4es.Thissupportcouldincludeprovidinginforma4onandforumsonthetopic;researchingcurrentandemergingtrends;conveningstakeholders;andworkingoncapacitybuildingini4a4ves,par4cularthoserelevanttononprofits

PanelDiscussion–TimBrodheadTimprovidedthecontextofwhatthesocialsectorlookslikeinCanada.Thesectorprovidesservicesonbehalfofgovernment,organizesac:vi:es,providesanorganizedvoiceforthosewithoutone,andisamajorsourceofinnova:veideas.

• Thereareover161,000registeredchari:esandnonprofitorganiza:ons• Theseorganiza:onsemployabout2mpeople,or7.2%ofCanada’slabourforce• Sectorrevenuesequal$146.6B• Thelargestsourceofrevenueisfromfeesandthesaleofgoodsandservices,43%revenue

Organiza4onsinthesectorneedtoescapefromanincreasinglycompe44veincomesearchinazero‐sumcapitalpool,augmenttheiraccesstounrestrictedincome,andbuildaddi4onalstabilitythroughincomediversifica4on.Ontheexpenditureside,organiza4onsneedtofindaddi4onalcapitalinordertobuildinnova4venewprogrammingandtotakeeffec4veprogramstoscale

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Overalltheforcesdrivingthedemandforthedevelopmentofsocialenterpriseandsocialfinanceresultfromacombina4onofneedsonboththeincomeandexpendituresidesoftheledger

PanelDiscussion–JaneAmbachtsheerJanediscussedopportuni:esandgapsintheadvancementofsociallyresponsibleinvestment(SRI)inCanada.

•  TheUnitedNa:onsPrinciplesforResponsibleInves:ngintegratesenvironmental,socialandgovernanceprinciplesininves:ng• Currently,thereare600organiza:onspar:cipa:ngwithover$20trillionunderinvestment;Canadaisslowtotake‐upasonly20organiza:onshavesigned‐on• CanadiancoreSRIcommunityhadabout3%ofitsassetsincommunityinvestmentsocialfinanceand6%ofassetsinsociallyresponsiblelending

Investmentmanagersareconstrainedbythepooledvehiclesavailabletothem,custodianshavebeenunfamiliarwithwhattheyaretryingtoachieveandalthoughthebanksarefamiliarwiththeobjec4vesandtoolstheyhavebeenunabletohelpsofar.Theyhavebeenfindingthefeeandgovernancerequirementsinpushingforwardthisagendahavebeenhigh,andthemoveisfurthercomplicatedwhenconsideringthatafounda4onlookingtotaketheseini4a4vesislikelytobefurtherconstrainedbytheirspecificmandate

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Thereareanumberofareaswherefurthersupportisneeded:1.Investmentdue‐diligenceatareasonablecost;2.Thedevelopmentofavarietyofinvestmentvehicles.3.Needthecapacitytomonitor,captureandcommunicateresults;4.Legalandtaxadvicesurroundingtheseinstruments

PanelDiscussion–JedEmersonJedhasbeenworkinginthebroadblendedvalueinves:ngspaceforover20years.Hisoverviewofthespaceisbasedontwokeyques:ons:first,areyouandyourassetsmaximizingyourfullpoten:al?Second,areallyourassetsstrategicallyalignedtoachieveyour10yeargoalsanda_ainyour30+yearmission?

• Unifiedinves:nginvolves,inpart,areframingofthemeaningbehindfiduciaryresponsibility• Therearethreetypesofriskafinancialins:tu:oncouldbeexposedtoarisingfromsocialandenvironmentalissuesofclients:creditrisk,liabilityriskandreputa:onalrisk• Byintegra:ngfinancial,socialandenvironmentalissuesintodecision‐makinganinvestorcanimproveriskmanagementandseeahigherreturnoninvestment• Wehavehigheconomic,lowsocialvalueinvestmentsusingfinancialinstrumentswithnumericreturns• Wehaveloweconomic,highsocialvalueinvestmentsusingphilanthropicinstrumentswithsocialreturns

Theareaofhigheconomic,highsocialvalueinvestmentsusingblendedvalue,investmentswithmul4plereturnsandbothfinancialROIandsocialROIpresentsagreatopportunityfornewdevelopments.Oncewerecognizethatfor‐profitshavepowerfulsocialandenvironmentalimpacts,andthatnonprofitorganiza4onsareabigcomponentofoureconomywemovetowardsrecognizingthatweneednewtoolstobringthoseextra‐financialmetricsintothelight.

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Thereisanopportunityrightnowtorejecttheresetop4onfollowingthiscrisisandopenopportuni4estobuildnewperspec4vesoninvestmentandvaluecrea4on,aswellasperformanceandreturns

PanelDiscussion–NoraSobolovNoradelvedintothetoolavailablefordevelopingcapitalpoolsfornonprofitsandchari:esinCanada.Hertalkfocusedontheuntappedmarketforloansandotherproducts,theopportunitytoprovideriskreduc:onbyenteringthisnewmarket,theroleoffinancialintermediariesandtwokeyprovenmodels:UK’sVenturesomefundandtheUS’sNonprofitFinanceFund(NFF)

• Thefinancialtoolsavailabletononprofitsarelimitedcomparedtothoseavailableintheprivatesector• Thenonprofitsectoronlyhastheequivalentofseedcapitalthroughphilanthropyandgrants,li_leworkingorventurecapital,afewloansbeyondthoseagainstassetsandmortgages

Twokeymodelsserveasexcellentexamplesofwhatcanbedone.Venturesomehasa12yeartrackrecord,beWerthanbreakevenresultsandprovidesunsecuredlendingincludinglinesofcredit,workingcapitalandbridgeloanswithoutanduseofgovernmentfunds.TheNFFbeganwitharegionalbase,founda4onandprivatelendersupportandmettheneedsofnonprofitclientsofwhich85%didnothaveasocialpurposebusiness.Theirtrackrecordincludesa0.5%chargeoffrateand70%ofitspoolprovidesmarketreturn

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Theproposalhereistoopenupintermediariesforlendingtoandinvestmentinnonprofitsandchari4es.Thegoalistofillgapsinaccesstocapitalandbuildonexis4ngprovenmodels

PanelTakeawaysPanelMember Takeaway

NoraSobolov Thereisanuntappedmarketandnoonesinglecorrectwaytoapproachthis,weneedtointegrateoursilosofexcellence

TimBrodhead ThelearningfromtheUKisthatnoonesectorcantacklesocialchallenges,weneedmul4plesectorstocreateanapproach

JaneAmbachtsheer

Willingtoleadthediscussionforthedevelopmentofafundoffunds,opportunitytofundsomeonetoleadthisworkwithinaUniversity,lookintodevelopanimpactinvestmentworkstreamwithinSRImandate

JedEmerson Impactinves4ngisinmo4on.TheissuesthatareraisedhereinCanadaarenotinisola4on;peopleareinsearchofsolu4onstomanyofthesameques4onsgloballyandthereisopportunitytobeapartofthediscussionandofferourlessonslearned

9Thereareanumberofnextstepstofollowuponandcollec4velyadvance

Par4cipantDiscussion

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Theques4onandanswerperiodinvolvingthethepanelwaslargelyfocusedonthegeneraltrendsofinnova4onandentrepreneurshipaswellasprac4calchallengesandopportuni4esofdevelopingasocialfund

Par4cipantDiscussion(Tools)

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Whatistheminimuminvestmentthresholdtodevelopafinancialproductandwhataresomeoftheprac:calstepstogettoscale?

• Oneprivateinvestmentmanagementcompanyrequires$50mofraisedcapitaltodevelopanewproduct

• Oneapproachtosolicitinterestistoaskthemarketfor‘bestideas’proposals;thiswillcreateawarenessandengagementbutalsotapintospecificfinancialskillsets

• Byrecrui4ngchampionsandsmallworkinggroups,onefundwasabletodesignanewproductandhasreceivedbuy‐infromotherlargefinancialins4tu4ons

• Founda4onsareconsideringwaysinwhichtheycaninvest95%oftheirassets;thereisanopportunityforprivateandcommunityfounda4onstochannelmorefundstoprogram‐relatedinvestments(PRI)(Ex.45%ofHeronFounda4onassetsareearmarkedforPRI)

Par4cipantDiscussion(Toolscont.)

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Whatistheminimuminvestmentthresholdtodevelopafinancialproductandwhataresomeoftheprac:calstepstogettoscale?

• Theroleoftheintermediaryshouldnotbeunderes4mated;findingdealsandconduc4ngdue‐diligencehasacostburdenthatcanbeminimizedbyaggrega4ngefforts

• Intheini4alstagesofsocialinves4ngandfunddevelopment,Governmentshouldreducethecostbarrierstoconductdue‐diligenceands4mulatedealflowbyseedingorfundingthiswork

• Therearenotalotofretailinvestmentproductsavailable.MicrofinanceisagoodexampleofaproductaswellasCalvert’sCommunityInvestmentnote

Par4cipantDiscussion(Innova4on)

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Howdowebridgetheinnova:ongapbetweenthenonprofitandtradi:onalfor‐profitworlds?

• Asagroup,weneedtorecognizeandembracethegenera4onshipandthenewvisionforsocialchange

• Thetradi4onalapproachtofinancehasnotworkedevidencedbythepastfinancialcrisis.Weneedanewvisionforfinancethatblendssocial/environmentalandfinancialgoals

• Formalizeaframeworkforentrepreneurstoseekoutcapitalsourcesandreceivemoney

• Needtoharnesstheroleofsocialnetworking

Par4cipantDiscussion(Innova4on)Cont.

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Howdowebridgetheinnova:ongapbetweenthenonprofitandtradi:onalfor‐profitworlds?

• Iden4fyandcelebratesuccessfulnewpartnershipsandmodels

• Promoteentrepreneurship–thiswilldrivebenchmarksandaWractnewsourcesofcapital

• Metricsareimportanttounderstandholis4cperformanceandshowprogression;itispoortoassumevalueformoney,nonprofitsneedanapproachtomeasurement

SummaryofFeedback

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ItisrecommendedthatCausewayfocustheireffortsonbeinganenabler.Thiscouldtakeformby:

• Organizingpresenta4ons,informa4onsessionsandforumsonthesubject• Communica4ngrelevantnewsandupdatesintheformofamail‐out• Researchingcurrentandemergingtrends• Workingoncapacitybuildingini4a4ves,par4cularlythoserelevanttononprofits

SummaryofFeedback

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ThemostcommonlyheldopinionisthatCausewayshouldconveneandfacilitatefollow‐updiscussionsfocusedoninvestmentvehicleopportuni:es.Theopportuni4espresentedwithinthediscussionwere:

1)  ALoanandInvestmentFund2)  ACommunityInvestmentVehicle3)  AFundofFundsProduct4)  ASocialVentureFund5)  AProgramRelatedInvestmentFund

Moreinforma4onregardingeachop4oncanbefoundinAppendixA:SixOp4ons

Causeway’sNextSteps

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Communicate Convene Facilitate Enable

• ProduceareportoftheDec3ImpactInves4ngEventandbroadlycirculate• Set‐upamailinglisttoproviderelevantinforma4onandnextstepstoallinterestedpar4es

• Schedulemul4plemee4ngsinearlyJanuarytocreatenetworksadvancingdiscussionsonthedevelopmentoffundsservingthesocialsector• Extendinvita4ontoDec3eventpar4cipantsandotherslikelytobeinterested

• Hostandfacilitatethediscussionbetweenmul4plestakeholders• Coordinatesubsequentmee4ngs,minutes,andac4onitems

• Coordinateandsupportresearch,planningandoutreachefforts4edtotheop4on(s)undertaken

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APPENDIXASixOp:ons

Op4on1:LoanandInvestmentFundConcept

•  Thisfundwouldinvestexclusivelyinnonprofitorganiza4ons–  Asimilarmodel,theNonprofitFinanceFund(NFF)isaleadingnonprofit

focusedfundintheUS.–  Actasanintermediarybetweenthebanksandthenonprofit

–  AppendixBprovidesdetailsinaddi4ontothetablebelow:•  Lead:NoraSobolov

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NFFFocus

NFFprovidesnonprofitswithloans(includingfacili4es,workingcapitalloans,andlinesofcredit),grants,andasset‐buildingprogramsaswellasadvisoryservices(includingworkshops,referrals,andbusinessanalysis)

NFFTrackRecord

NFFhaslentoverUS$160mmandleveragedUS$1bnofcapitalinvestmentonbehalfofitsnonprofitclients

NFFLoans

Interestratesvaryaccordingtomarketandsector.Loansaretypicallyrepayableover5‐7years

Op4on2:CommunityInvestmentVehicleInvestmentConcept•  Theinvestmentfundwouldinvestexclusivelyinsocial

enterprisena:onally–  Needtodesignavehicletochannelsociallyresponsibleinvestment

dollarsfromindividualsandins4tu4onalinvestors

•  Lead:SocialInvestmentOrganiza4on(SIO)–  SIOisintheini4alstagesofafeasibilitystudyforthedevelopmentofa

CommunityInvestmentVehicle(EugeneEllmen)

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Op4on3:FundofFundProductInvestmentConcept•  Theinvestmentwouldfocusbroadlyonsocialimpact

–  Similartoamutualfundstructure

–  Fulfilsaneedtochannelsociallyresponsibleinvestmentfunds;missionrelatedfundscouldaccessallmajorassetclasses

–  Diversifycommonrisks

•  Lead:MercerManagementConsul4ng(JaneAmbachtsheer)

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Op4on4:SocialVentureFundInvestmentConcept•  Impactinvestmentforsocialenterpriseandsocialpurpose

business–  Fundstocomefromprivateinvestmentcapital–  Poten4alforfundstoleverageGovernmentfunds

–  Largescaleincomparisontootherop4ons

•  Lead:KerriGolden(MaRSCapitalServices)andSarahGoel(Edgestone)

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Op4on5:Founda4onMRI(MissionRelatedInvestment)FundInvestmentConcept•  No4onalpooledinvestmentcapitalavailabletocatalyze

developmentofaspectrumofintermediariesmakingsocialinvestments(nonprofitssocialpurposebusiness)moreaccessibleforphilanthropicins4tu4ons–  Leveragefounda4onassetsinpursuitofmission

–  Aggrega4ngprivatefamilyandcommunityfounda4onresources,poten4allyreachingotherphilanthropicfunders(e.g.corporate)

•  Lead:TheJWMcConnellFamilyFounda4on,CommunityFounda4onsofCanadaandPhilanthropicFounda4onCanada

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APPENDIXBAloanandInvestmentFundforNonprofitsConceptPaperSeeAccompanyingPDF

AppendixC:Par4cipa4ngOrganiza4ons

MercerManagementConsul4ng EdgestoneCapitalPartners HSBC

SearsCanada SocialCapitalPartners RBC

SocialVenturePartners ExcaliburCapitalManagement CommunityFounda4onsofCanada

PinnacleCapital ClearlySoCanada TDSecuri4es

AssetInc. Loewen&Partners CanadaGives

GreeningGreaterToronto OrchardCapital LumiraCapital

PhillipsHagerNorth UniversityofToronto CreditUnionCentralofCanada

InvestecoCapitalCorp SocialInvestmentOrganiza4on SiMPACTStrategyGroup

NewPathFounda4on Re4reWell TDAssetManagement

TorontoAtmosphericFund ImagineCanada WellesleyIns4tute

RBCWealthManagement CarletonCenterforCommunityInnova4on

DeutscheBankAdvisors

Axcelon PhilanthropicFounda4onsCanada TDWaterhouse

Arbopals NorthRockCapital UhuruCapital

LynnEakinandAssociates Igniter TheIntersolGroup 25

SummaryofFeedbackBytheNumbers

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9.1

9.2

8.9

Number of attendees (see Appendix C for a list of participating organizations)

Rating of the event

Quality of the content

Rating of the venue

FromBlendedValuetoImpactInves4ng:CatalyzingFinancialServicesforEnterprisingNonprofits

Forfurtherinforma4on,pleasecontact:

AdamJagelewskiCauseway/SiG

Telephone:647‐260‐7846Email:adam.jagelewski@socialfinance.ca

Suite100,101CollegeStreet,Toronto,ONM5G1L7