Impact Investing and Nonprofits: Opportunities, Innovative Structures, and Creative New Ways to Raise Funds and Further Your Mission

Transcription

1 Impact Investing and Nonprofits: Opportunities, Innovative Structures, and Creative New Ways to Raise Funds and Further Your Mission Co-sponsored by Venable LLP and InsideNGO Thursday, January 14, 2016, 12:30 2:00 pm ET Venable LLP, Washington, DC Introduction and Overview Thomas Dente, Chief Operating Officer, InsideNGO Moderator Jeffrey S. Tenenbaum, Esq., Partner and Chair of the Nonprofit Organizations Practice, Venable LLP Speakers Kevin Saunders, Esq., Deputy General Counsel, ACCION International Kamil Cook, Esq., Senior Attorney, NatureVest/The Nature Conservancy

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3 Upcoming Venable Nonprofit Events Register Now February 4, 2016: Nonprofit Chapters and Affiliates: Finding Structures and Relationships That Address Your Challenges and Work Well for Everyone March 10, 2016: Nonprofit Federal Award Recipients: Establishing an Ethical Culture, Appropriate Internal Controls, and a Collaborative Relationship with Your Federal Agency That Adds Value (co-sponsored by Venable LLP and InsideNGO) April 14, 2016: UBIT: What Your Nonprofit Needs to Know about Sponsorships, Advertising, Royalties, and Cause Marketing 3

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5 What Is Impact Investing? What instruments? What structures? How measured? What time period? Investments intended to generate positive social and/or How large? environmental impact How generated? and which generate financial returns What time period? involving a diverse group of stakeholders Investors, philanthropists, venture capitalists, NGOs, governments, small and growing businesses, banks, multilateral corporations, social enterprises, beneficiaries... 5

6 Impact Investing: A Complex and Dynamic Ecosystem SHAPING Policy/Regulation Academia/ Think Tanks Media Market Infrastructure SUPPORTING Financial Institutions (Banks, Pension Funds, etc.) Instruments, Intermediaries, and Investors Technical Assistance (Certification, Measurement, and Monitoring) STRATEGY (MISSION AND PROGRAM NEEDS) Traditional Programming NGO Goal: Impact at Scale Grants and Contracts Donors Foundations Governments Corporate CSR DELIVERING Return-Seeking Capital Impact Investors (Funds) Companies Shared Value Social Enterprises Traditional Donors Commercial Investors (e.g., pension funds) Essential Stakeholders Market-Based Investments Beneficiaries Local CSOs/Community Groups Local Partners Social Enterprises Local Governments Donors 6

7 Different Primary Roles NGOs May Play Recipient (different forms and types) Investor (different forms and types) Technical assistance (e.g., certification, results monitoring) Multiple roles 7

8 Supporting Collaboration: INGO Impact Investing Forum Learn Share practices and sector knowledge and topic insights Collaborate/Innovate Conduct sessions on key topics and issues Explore partnership approaches Advocate October 2015 INGO Impact Investing Forum 20+ INGOs Convene special sessions to share findings and highlight importance of effort Conduct group-based research showing value to generate benefits and results for impact investors through proven, scaled and skilled organizations 8

9 What We ve Heard: Key Needs Organizational Readiness Internal advocacy/culture change to maintain momentum given likely failures in space Asset-mapping approaches to identify unique capabilities, opportunities, and organizational gaps Communicating with stakeholders and embedding within overall strategy Investment in new skills with dedicated focus Shaping Opportunities Governance/corporate structure options Co-investment funds and shared opportunities Funding structures, sources, instruments, and options Sustaining Efforts Infrastructure support required across full-value chain (e.g., due diligence to risk management, investment expertise, incubation services, measurement) Approaches to share infrastructure across the sector 9

10 Impact Investing: The Accion Experience Kevin Saunders Venable LLP/InsideNGO January 14, 2016

11 What does Accion do? We work to reduce vulnerability and increase opportunity, through the provision of financial services to those who remain excluded from them. 11

12 What is Financial Inclusion? We define financial inclusion as: The availability of a full suite of financial services, including credit, savings, insurance, and payments. Provided with quality, in a convenient, affordable, and suitable manner that protects and upholds the dignity of the client. To everyone who can use financial services and who is financially capable that is, informed and able to make good decisions about their use of these services. And delivered in a diverse and competitive marketplace of financial service providers. 12

13 How we build impactful relationships By offering a coordinated package of management, investment, and governance support to partner institutions. Management and Technical Assistance Investment Governance We deploy teams of managers to work in select partner institutions We use our investment vehicles to link partners to commercial banks and capital markets We provide strategic leadership to investee institutions through board participation We enable partners to expand outreach, strengthen core systems, access innovations, attract deposits, become independent of donor funds, and establish financial leverage Our board representatives bring international and regional knowledge We provide international expertise and ensure the application of best practices We provide partners with technical assistance 13 We provide our partners with strategy, management, and planning guidance

14 How we invest Three distinct portfolios to advance financial inclusion Gateway MFI Investment Frontier Investment Group Venture Lab We use our investment vehicles to link MFIs to commercial banks and capital markets We enable MFIs to expand outreach, strengthen core systems, access innovations, attract deposits, become independent of donor funds, and establish financial leverage An early- and growthstage equity approach that leverages our expertise in financial technology, financial inclusion, consulting, and investing in emerging markets Invests in start-ups that have completed research and development and are at the pilot/first-revenue stage which is normally considered pre-investable Initial investments typically run between $1 and $3 million, invested either as convertible debt or equity Investments run between $100,000 and $500,000, invested as either convertible debt or equity Transitioning to a forprofit, third-party fund 14

15 Our history as a leader and pioneer in the ﬁeld Accion founded first microfinance network Accion develops the CAMEL first financial-assessment tool for MFIs Accion Investments most successful MFI equity fund ever Accion launches center for Financial Inclusion Venture Lab angelinvestment initiative launched Accion founded to help the poor of Latin America Accion pilots microlending in U.S Dialogue on Business client-education program launched Accion expands into India CFI launches Smart Campaign for consumer protection First microloan made, in Recife, Brazil BancoSol founded first private, commercial bank for the poor Accion expands into Africa Compartamos IPO most successful microfinance IPO in history Accion launches operations in China Accion Bridge Fund first MFI guarantee fund ProFund created first equity-investment fund for MFIs Accion founds Council of Microfinance Equity Funds Frontier Investments venture capital initiative launched 2015 Accion launches operations in Myanmar

16 Key elements of impact investing story 1973: First Microloan Identification of a mission-related product/service capable of being scaled through a commercial approach 1992: BancoSol Creation of an organization capable of harnessing investor capital 2003: Accion Investments in Microfinance Demonstration effect drives ability to attract broader commercial capital through traditional pooled investment vehicles 2007: Compartamos IPO Realization and redeployment of investment gains 2008/2012: Frontier Investments Group & Venture Lab Expansion of impact investment targets/goals based upon learned information 16

17 Our impact GLOBAL IMPACT 65 MFIs Microfinance Institutions Accion helped build, in 32 countries on four continents since 1961 ACTIVE BORROWERS ACTIVE LOAN PORTFOLIO MILLION BILLION Active borrowers in 2014, impacting the lives of 26.5 million family members and employees 17 Active portfolio of loans made through partners in 2014, in dollars

18 Our impact CLIENTS PROTECTED WOMEN SERVED in 4 MILLION MILLION ACTIVE SAVERS Active savers in 2014, with $4.9 billion in savings deposits Clients served by Smart CampaignCertified financial institutions 18 3 in 4 borrowers are female

19 Our 2014 financials 19

20 Impact Investment Strategies and Considerations Kamil Cook Senior Attorney 20

21 Impact Investment and Conservation PURPOSE GOAL NatureVest is a division of The Nature Conservancy dedicated to delivering conservation outcomes while also generating financial returns Generate a pipeline of conservation-based transactions to tap into the est. $23bn conservation impact investment market ( ) Structure transactions that can be replicated and scaled STRATEGY Source impact capital from current and new supporters Share our knowledge and experience to strengthen awareness and support for impact investment in conservation 21

22 Impact Investing at the Conservancy: Mapping to Global Strategies Landscape Conservation Green Infrastructure Debt Restructuring for Conservation Sustainable Agriculture Water Security Fisheries Reform 22

23 Impact Investing Strategies and Issues Impact Investment Tools: Conservancy loans and equity investments in conservation businesses Developing investment funds to finance conservation projects Developing conservation businesses Managing conservation businesses Marketing financial interests in conservation businesses Key Issues: Selecting Strategic Partners/defining the appropriate level of control for TNC Selecting the Vehicle/Approach/Target investors Governance/Control of conservation businesses to ensure conservation mission Deal Metrics and Implementation Liability Management Securities, insider trading, operational risks Conflicts of Interest (co-investing with potential insiders, insider trading) Tax considerations Joint Venture risk; private benefit; UBIT Publicity 23

24 Case Study: Murray Darling Basin Balanced Water Fund Why a water fund? Leverage developed water markets to achieve financial, environmental, and social outcomes Fund Offering: AU$25 million to AU$100 million to only Australian wholesale investors Investment Product: Equity interests in open-end unit trust Portfolio: Murray-Darling water entitlements and allocations; real assets Investment Strategy: Capital appreciation from portfolio of permanent water rights; sale and lease of temporary water rights Social and Environmental Impact Outcomes Donates between 10% and 40% of water assets to conduct environmental watering; higher donations when water is abundant (cheap) and lower when water is scarce (expensive) Secures flows to vital wetlands in the Basin Restores important migratory bird, fish, and frog habitat Restores important indigenous cultural lands 24

25 Murray Darling Basin Balanced Water Fund: Conservancy Roles, Opportunities, and Challenges Conservancy Roles: Anchor equity investor Fund sponsor, developer collaborated with investment manager (Kilter Rural) to develop fund structure and investment strategy Marketing interests in Fund On-going oversight of environmental and social outcomes 25

26 Murray Darling Basin Balanced Water Fund: Conservancy Roles, Opportunities, and Challenges Pros/Opportunities: Accelerate environmental watering activities through scale Collaborate with best-in-class water investment manager Expand Conservancy learning about effective water markets (potential application in the U.S. and other markets) through collaboration with Kilter Rural Expand network of conservation supporters Catalyze similar initiatives in other markets Challenges: Costs preparing offering materials, fees to service providers, negotiation with key investors, creditors, diverse service providers with differing objectives Liability/Reputational management securities offering, marketing Governance/Control finding the right balance Balancing diverse constituents conservation outcomes, political sensitivities, commercial expectations Responding to changing market conditions timeliness of decision-making, ability to nimbly respond to developments with partners Regulatory framework for investment funds, taxation 26

27 Organizational Developments Around Impact Investing Establish business lines around global strategies Establish targeted joint venture policy to anticipate Organizational structuring, tax, and reputational issues Readiness Establish marketing and communications protocols Shaping Opportunities Establish more nimble governance process for impact investment transactions Sustaining Efforts Infrastructure support focus on asset management, monitoring, and reporting on impact investment performance 27

28 Questions? Jeffrey S. Tenenbaum, Esq., Partner and Chair of the Nonprofit Organizations Practice, Venable LLP t Thomas Dente, Chief Operating Officer, InsideNGO t Kevin Saunders, Esq., Deputy General Counsel, ACCION International t Kamil Cook, Esq., Senior Attorney, NatureVest/The Nature Conservancy t To view an index of Venable s articles and presentations or upcoming programs on nonprofit legal topics, see or To view recordings of Venable s nonprofit programs on our YouTube channel, see or on Twitter for timely posts with nonprofit legal articles, alerts, upcoming and recorded speaking presentations, and relevant nonprofit news and commentary. 28