Impact Investing Panel Ford Foundation Kresge Foundation The

Impact Investing Panel Ford Foundation Kresge Foundation The Philanthropy Forum at GSPIA Grantmakers of Western Pennsylvania January 28, 2015 South Carolina Community Loan Fund 2

Hamilton Crossing The Strong Families Fund 3 Core Innovation Capital - VC What is impact investing? Impact investments include any type of investment that is intended and designed to generate both a measurable social or environmental benefit and a financial return.

Program-related investments (PRIs) Other investments for social or environmental mission Sometimes called Mission-driven Mission-related (MRIs) Impact 6

Impact Investment Continuum Source: The F.B. Heron Foundation 7 Foundation Investments Grants

Mission or Social Investments Programmatic Returns Endowment Investments

Financial Returns 8 Social + Financial (or Environmental) Gain = Investing for Impact Source: Calvert Foundation 9

Impact Investing PRI MRI 10 Traditional Philanthropy Fund

Grants from Earnings ~ 5% of assets Seek only social return by making grants Invest Endowment Assets 95% of assets

Seek only financial return to fund grants while preserving or growing endowment 11 New Philanthropic Investing Continuum Grants

Recoverable Grants Primary Motivation: Social Return PRIs: ProgramRelated Investments

MRIs: MissionRelated Investments Endowment Investments Primary Motivation: Financial Return

. 12 What is a Program Related Investment (PRI)? 13 Program-Related Investments Like grants, they make foundation funds available for

charitable purposes but Unlike grants, they are expected to be repaid, often with at least a modest financial return and Unlike other foundation investments, they cannot be made for the primary purpose of financial gain. 14 PRI Benefits for Foundations

15 Benefits to Recipients Access to inexpensive investment capital Strengthens financial capacity Builds credit and performance record 16

16 Ripe for PRIs? Reliable Income Stream Feasible Business Plan Financial and Managerial Capacity 17

PRIs The Challenges Can be complex and time consuming Requires programmatic and financial skills Legal fees and other transaction costs Negotiations and structuring potentially adversarial Social impact difficult to measure / quantify Long-term reporting and monitoring 18

Mission-Related Investments (MRIs) Align corpus investments with mission Increase flow of capital to underserved/high risk markets Generate social or environmental benefits Achieve a competitive financial return 19

The Ford Foundations PRI Program Ford Foundation PRI Fund - History Ford pioneered the use of PRIs in 1968 From 1968-2014, Ford committed over $650 million in PRIs

The PRI Fund currently is capped at $280 million, with $250 million outstanding and committed $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $0

1968 1974 1980 1986 1992 1998 2004 2010 Cumulative Approvals Ford Foundation PRI Fund Distribution by Geography $250 million outstanding & committed Global 6%

Latin America 3% Africa 4% South & Southeast Asia 5% United

States 81% Ford Foundation PRI Fund Distribution by Sector $250 million outstanding & committed Arts and Media 2% Workforce

4% Small Business Dev't 1% Cross Sector 9% Other

6% Financial Services 21% Microfinance 5% Livelihood 16%

Housing 36% The Kresge Foundations Social Investments Practice 24 Kresges Social Investment Practice

The Social Investment Practice works to advance programmatic priorities by deploying a range of tools to fill unmet capital needs. The Practice seeks to create and/or invest in transactions that align with the Foundations strategies, leverage resources from other investors and achieve high social impact. 25

Total Social Investments by Program 26 Roadmap to Integration 27 Kresge Screening for Financeable Opportunities What is the proximity of this investment opportunity to program strategy?

Is Program onboard with this opportunity? Is non-grant capital needed to fulfill the scale of the problem/need? Is the ratio of impact to risk right? i.e. high risk transactions = high potential for impact Is there a potential source of repayment (cash flow, earned revenue, etc.)? Does organization have a strong financial track record, or evidence of future strong financial performance? Does organization have evidence of their ability to take on and manage debt? Does the organization have clear and measureable objectives for how the

money would be used and the impact It will have? Would Kresges role help to attract additional capital sources? Can we be a good co-investor by participating in this transaction? 28 Social Investment Tools - Loans An entity or individual borrows an amount of money, called the principal, from the lender, and is obligated to repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments. The loan is generally provided at a cost, referred to as interest on the debt. In a legal

loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Kresges Social Investment Practice can provide debt with flexible structures including low-interest rates, interest-only periods, long terms, and performance-based pricing and repayment expectations. 29 Social Investment Tools Credit Enhancement

Credit enhancement is generally used to incentivize the issuance of debt or to obtain better terms for debt instruments. Through credit enhancement, the lender is provided with reassurance that the borrower will honor the obligation. Typical forms of credit enhancement include additional collateral, insurance, 3rd party guarantees, subordinate debt, and loan loss reserves. Kresges Social Investment Practice can provide credit enhancement in the form of subordinate debt and guarantees while Programs can

use grants to fund loan loss reserves. 30 Social Investment Tools - Equity An equity investment is an investment in a for-profit in exchange for a share in the ownership of the company. In the event of a bankruptcy, liquidation, or other inability for the company to repay its investors, equity investors will be repaid last after all other obligations including loans, taxes, and operating expenses.

Kresges Social Investment Practice can make equity investments in for-profit organizations in exchange for ownership shares. Kresge/SIP can also make loans to for-profit organizations that may convert to equity under certain conditions. 31 Colorado Coalition for the Homeless

32 Woodward Corridor Investment Fund 33 Roca, Inc. 34

35 For More Information Kim Dempsey Deputy Director Social Investments Practice Kresge Foundation [email protected]

Christine Looney Senior Program Investment Officer Ford Foundation [email protected] 36