epip webinar - investing 101 and transformative finance - may 10 2017

INVESTMENT 101 & TRANSFORMATIVE FINANCE

EPIP Webinar May 19, 2017 EPIP Host: Biz Ghormley Presenters: Alex Haber & Andrea Armeni

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Emerging Practitioners in Philanthropy (EPIP) is a national network of foundation professionals, social entrepreneurs and other change makers who strive for excellence in the practice of philanthropy.

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We provide a platform for our community to:

Connect with others

Learn & practice

leadership skills

Inspire emerging ideas in the social sector

Get in touch! Please reach out with any questions or to learn more about membership!

Biz Ghormley [email protected]

Director of Operations & Member Services

What’s Next? • Next EPIP Webinar! • CounterHate Webinar – June, specifics TBD

• All Events - epip.org/events

• In lieu of a 2017 EPIP Annual Conference – Unity Summit! •  September 18-22, 2017 in New Orleans, LA •  CHANGE Philanthropy's Unity Summit – changeunitysummit.org

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Speakers Alex Haber, RSF Social Finance, former EPIP Bay Area Co-Chair Andrea Armeni, Transform Finance

Why Mission Aligned Investing?

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Why EPIP?

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RSF’s Approach: Integrated Capital

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Coordinated use of grants, loans, and investments to support mission-driven

enterprises

Shake the Foundations

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Emerging economic justice project made up of both foundations and economic/climate

justice movement organizations advocating for foundations to participate in a financial

commons

EPIP WEBINAR

A Foundation’s Mission: the Investment Side of the House

Andrea ArmeniTransform Finance

May 10, 2017

ABOUT TRANSFORM FINANCE

§ Building a bridge between capital and social justice: advancing a community-centered vision for finance with investors and practitioners

§ Convening the Transform Finance Investor Network: a community of practice for asset owners – such as foundations – committed to deep community engagement, non-extractiveness, and fair allocation of risks and returns

EPIP Webinar – Foundation Investments – 5/10/2017

WHAT IS A FOUNDATION?

A vehicle for disbursing philanthropic capital?

… or is it something else?


WHAT HAPPENS TO THE OTHER 95%


§ Traditional view: foundations must maximize the returns to the endowment to ensure there’s enough to disburse in grants.

THE OTHER 95%

As you seek to perpetuate the endowment and maximize it… § Risk of acting at cross purposes§ Missed opportunity to do more in furtherance of

mission


THE OTHER 95% - ACTING AT CROSS-PURPOSES?


THE OTHER 95% - MISSING THE OPPORTUNITY


THE OTHER 95%

Corollary: § Adding other considerations may reduce returns§ May violate the law

Anti-Corollary: § Not necessarily the case§ Keep focus on what the ultimate goal is


MAKING USE OF THE OTHER 95%

Philanthropy is a drop in the bucket:

You can’t fight for social change with one hand behind your back


THE OTHER 95%: ALIGNING CAPITAL WITH MISSION

§ Alternative view (1): we will seek to minimize misalignment and use some assets in furtherance of mission

§ Alternative view (2): all our assets – from grant to endowment – should be in service of mission


THE OTHER 95%: AVOIDING MISALIGNMENT, FOSTERING ALIGNMENT

§ “Screening” and Divesting§ Mission Related Investments (MRIs)§ Program Related Investments (PRIs)


THE OTHER 95%: AVOIDING MISALIGNMENTSCREENING AND DIVESTING

Avoiding investments in what is directly antithetical to the mission:§ “I can’t be making my money from private prisons”§ Penalizing bad actors via cost of capital§ Signaling function


THE OTHER 95%: FOSTERING ALIGNMENTMISSION RELATED INVESTMENTS

§ Market-rate investments from the foundation’s endowment corpus that support the mission of the foundation by generating a positive social or environmental impact.



How big is this space? § Not clear – see the resources provided – but it’s

certainly growing


THE OTHER 95%: FOSTERING ALIGNMENTPROGRAM RELATED INVESTMENTS


Actually defined by the IRS (unlike MRIs): § Primary purpose of the investment is to accomplish

the foundation’s exempt purposes§ Production of income or appreciation is not a

significant purpose§ Can count toward the annual 5% (but should they?)


§ Loan to farmers at below-market rate to improve water management

§ Equity investment to develop drugs that would not otherwise be developed because they target poor populations

§ A loan guarantee so a non-profit child care can get a bank loan to expand facilities



Developing a whole PRI program: § Establish the alignment and the impact thesis§ Understand constraints and preferences§ Figure out investable opportunities§ Develop a carve-out Investment Policy Statement§ Establish a due diligence and selection framework§ Find a pipeline of investable deals

Example: TF work on alternatives to predatory lending


100% ALIGNMENT WITH MISSION

§ A duty? An opportunity?


WHY DO FOUNDATIONS PLAY A SPECIAL ROLE IN THE IMPACT INVESTING SPACE?

§ Outsize influence§ Driving best practices§ Risk-taking § Access to relevant information from the program

side


THE MRI AND PRI SPACEWHAT CAN PROGRAM OFFICERS AND OTHERS DO?

§ Help lift up voices from communities§ You are the expert on the effects of these

investments§ Don’t be intimidated by the lingo (but also, learn a

bit about finance) § Find out who are the right interlocutors and who

holds power§ Go for small wins within a sequencing strategy


BABY STEPS FOR FOUNDATIONS

§ Hold conversations on this with both program and investment staff

§ Move your cash§ Vote your proxies, improve your managers, ask

who’s getting rich off of this…§ Increase transparency§ Do a training for the program side and/or the

investment side to learn more


WHAT CAN PROGRAM OFFICERS AND OTHERS DO?

A concrete example: Funding the Arts

§ Can’t do a grant, but a loan for a new theater would do nicely

§ It must be repaid, so revenue must come from somewhere

§ Does it fit within an IPS? Need for a carve-out? § Should it come from the 5%?


EFFORTS TO ALIGN:FOUNDATION ENDOWMENTS AND RACIAL JUSTICE

How can we evaluate the racial justice consequences of a foundation’s investments? [real project]

An opportunity for all sides of the house to align

§ Program side has the information§ A review of investments won’t hurt§ It can actually further the mission!


DISCUSSION


RESOURCES


§ Mini-glossary§ List of affinity groups and research§ The Transform Finance Institute for Social Justice

Leaders

Please do get in touch!

Andrea ArmeniTransform Finance

[email protected]+1 (415) 265-0035


epip webinar - investing 101 and transformative finance - may 10 2017

Government & Nonprofit