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Impact Investing Setting the Table

NORTHERN TRUST SOCIAL IMPACT ADVISORS

Deborah Kasemeyer Senior Vice President Director Community Development & Investments

May 18, 2016

Indiana Philanthropy Association

northerntrust.com | Northern Trust 2017

IMPACT INVESTING DEFINED

Interest in Impact and Mission Investing continues to grow but there is often confusion on definitions

Investment which creates an intentional social impact with a financial return May or may not include risk adjusted return

concessions Meets the But For Test

Impact Investing

Rated market investments which align with the investors stated mission or negative/positive screens Does not include any risk adjusted rate concession Does not meet the But For Test

Mission Investing and ESG/SRI


IMPACT INVESTING & TRANSPARENCY

Rush to deliver impact products has created a lack of transparency, confusion of terms, higher costs, recycled impacts and loose standards with no accountability


IMPACT INVESTMENTS

Impact investing can be further defined as place based community development investments, direct equity or marketable securities

Community Development Grants, PRI,

Portfolio

Direct Equity Funds

Marketable Securities Bonds


COMMUNITY DEVELOPMENT IMPACT INVESTMENTS

Overview of Northern Trust Impact Investments by Type

CDFI

Grants

Program Related Investments

Loan Pools

Guarantees

Bonds

Direct Nonprofit

Grants


Social Impact Bonds

Front Funding of a Social Intervention


Grants

Tax Advantaged

Low Income Housing Tax Credits

New Market Tax Credits

SBIC/Equity Funds

Venture Capital Funds

Equity Funds

.


BUILDING ON GRANT IMPACTS

What are the steps to increasing impacts and creating sustainable change through investment?

Capital Deployment Community Scans Impact Tracking

Presented by Maria Fruth, CEO/President Healthcare Foundation of La Porte May 2017

A Partnership to Craft Impact

The New Foundation

Created from the sales proceeds of IU Health La Porte Hospital

March 1, 2016 Located: La Porte, IN $150 million in assets La Porte Hospital Foundation blended into HFL

La Porte Hospital 1972

We are going to build a hospital Ben Bortz

Community members create the La Porte Hospital Foundation

1978

The first Foundation gift

1998 La Porte Hospital becomes a Clarian hospital

Celebrating the signing with Clarian

2011 Indiana University Health La Porte Hospital

La Porte Hospital

A BRIEF HISTORY:

IUHLP sells to CHS 80% CHS / 20% IUH

2016

TOD

AY

Hired CEO

Operational Structure

Office & Furniture/ Equipm.

Strategic Planning

2016-2018

Board

Legal Structure Organizational & Operational

Documents

Stage 1 Activities

Selected Investment Company

(OCIO)

VISION

To be among Indianas top 10 healthiest communities by 2030.

MISSION

Empowering our residents to live healthy and well in and around La Porte, Indiana.

VALUES

Excellence: Show exceptional stewardship of our communitys investment by acting with honesty and integrity.

1

Innovative & Visionary Thought Leadership: Have the courage to think big and discover ways to optimize our health and empower our residents to be well.

2

Collaboration: Work hand-in-hand with donors, communities, not-for-profit partners and healthcare and wellness providers.

3

Commitment: Dedicate ourselves to optimizing resources to create pathways so that those in and around La Porte are empowered to live healthy and well.

4

Compassion: Be sensitive to the health and wellness issues and the needs of the communities we serve.

5

VALUES

THE ENVIRONMENT Opportunities & Threats

Community Scan N.Trust

CHNA LP Hospital

County Health Rankings

Getting to Know

EXTERNAL

INTERNAL

VALUES MISSION

STRA

TEG

IC P

LAN

NIN

G R

OAD

MAP

THE ORGANIZATION Strengths & Weaknesses

Scope of Activities

Governance

Management

OB

JEC

TIV

ES

VISION

2

3

1

4

Community Scan La Porte, IN A survey of demographic, social and economic data for the City of La Porte and La Porte County, Indiana.

Prepared by the Community Development and Investment Group, The Northern Trust Co.

Demographics - 1 Sources of Income - 5 Economy - 7 Crime Statistics - 10 Community Health - 11 Child Welfare - 12 Education - 14 Housing Stock - 17 Housing Mobility and Neighborhood Stability - 18 Banking Activity - 21 Residential Lending - 23 Small Business Lending - 31

Determinants of Robert Wood Johnson Foundation County Rankings 31 Anchor Institutions - 42

IDENTIFY COMMUNITY ASSETS

EMPTY

FULL

INCREASE CAPACITY

ASSETS

NEED

Getting to Know Sessions

The Glass Half-Full What organizations attend health and wellness needs in

the community? How do we celebrate health and wellness services already

in the community? How do we determine their capacity?

GTK Meetings

Introduce HFL and build relationships with key organizations

Clear communication through face-to-face meeting HFL and community organizations shared mission, vision,

goals and plans

Get to Know Meetings Research

Identified all not-for-profit organizations in La Porte County

Snapshot

Created a detailed profile for each organization

Invitation

Used emails, news releases, and the web to invite organizations to meet with us

Get to Know Meeting Summary Agenda

HFL Presentation (10 min) Q & A (5 min) Organizations Presentation (20 min) Q & A (10 min)

HFL has met with 40 local organizations: 24 area not-for-profits 5 government agencies 4 emergency services 5 school corporations 5 departments of LP Hospital

Get to Know Findings Positives

Engaged & Passionate Leaders Demonstrated Interest in Collaboration Leaders Know they Need to Adapt to Serve the Community

Challenges Obstacles for Clients of Many Organizations:

Opioid Addiction Lack of Access to Mental Health Treatment Transportation

Obstacles for Organizations: Lack of Funding and Staffing Board recruitment Leadership/management training Access and funding for professional marketing/web site/technical assistance/ fundraising best practices, etc...



CHNA LP Hospital


Getting to Know

EXTERNAL

INTERNAL

VALUES MISSION

STRA

TEG

IC P

LAN

NIN

G R

OAD

MAP


Scope of Activities

Governance

Management

OB

JEC

TIV

ES

VISION

2 GRANTMAKING

3 CHANGE MAKER/INNOVATOR

1 FINANCIAL HEALTH

4 ORGANIZATIONAL HEALTH



CHNA LP Hospital


Getting to Know

EXTERNAL

INTERNAL

VALUES MISSION

STRA

TEG

IC P

LAN

NIN

G R

OAD

MAP


Scope of Activities

Governance

Management

OB

JEC

TIV

ES

VISION

GRANTMAKING

CHANGE MAKER

1 FINANCIAL HEALTH

Provide for portfolio growth, net of distributions and related investment management that exceeds the average annual rate of inflation

Continue to involve community through fundraising

ENDOWMENT GROWTH

5% DISTRIBUTION

FOUNDATION SUSTAINABILITY

FINANCIAL HEALTH To provide effective stewardship of the foundations resources, manage risks and promote the foundations sustainability.

Minimum 5% annual distribution requirement as mandated by IRS Code

IMPACT INVESTING

Educate board and administrative staff on impact investing practices and strategies (program-related investments, mission-related investments, socially responsible investments and social impact bonds)

VALUES MISSION

VISION

4

Provide for portfolio growth, net of distributions and related investment management that exceeds the average annual rate of inflation

Continue to involve community through fundraising

5% DISTRIBUTION

ENDOWMENT GROWTH

FOUNDATION SUSTAINABILITY

FINANCIAL HEALTH

Minimum 5% annual distribution requirement as mandated by IRS Code

STRATEGIES

Engage Northern Trust (OCIO) to determine best practices and appropriate investment strategies

Risk management

Monitor the changing landscape of tax and policy

Review Investment Policy yearly

ACTION PLANS Engage Northern Trust (OCIO)

Provide effective stewardship of the foundations resources

Prudent use of operational expenses

Solid budget

Continue and grow special events: Tour de La Porte / Holiday at the Pops

Continue and promote Annual Giving, Corporate Sponsorships and Planned Giving

Educate board and administrative staff on impact investing practices and strategies (program-related investments, mission-related investments, socially responsible investments and social impact bonds)

IMPACT INVESTING

Engage Northern Trust (OCIO) in education efforts

Identify opportunities to bring PRIs and other strategies to the community

Survey of Board Members after Debby Kasemeyer's presentation "This topic is key to our mission" "The conversation with Debby was most interesting

and I hope we are scheduling more of those with more detail."

"Should have allocated more time for the Impact Investing topic."

"We need more information in Impact Investing."

Impact Investing So... What is next? Schedule educational sessions with Debby

Kasemeyer - Northern Trust Identify viable Impact Investing practices and

strategies Develop plan

323 Pine Lake Avenue | PO Box 517 | La Porte, Indiana 46352

219.326.2471

hflaporte.org

IFF Overview The Midwests Leading Community Development Financial Institution (CDFI) Prepared for: Northern Trust IPA Meeting May 18, 2017

What is a CDFI

Community Development Financial Institution

Certified by the US Department of the Treasury

Mission driven lenders and investors that primarily serve low-income and low-wealth people and places

Capital and development services

Create opportunities and provide support

Jobs and business growth Affordable housing Community services/community facilities Responsible consumer financial services

for the underbanked

What is a CDFI?

CDFI Economic Model

Sources of

Capital

Users of Capital

Borrowers and Customers

Community Development Financial Institutions

Regulatory Motivated Investors

Mission Motivated Investors

Policy Motivated Investors

Small businesses, microenterprise, housing developers, commercial real estate developers, and individual consumers

$

$

IFFs borrowers and customers are primarily nonprofit corporations. Other CDFIs serve individual consumers and small businesses.

$ $ $

In 1994, the Riegle Community Development and Regulatory Improvement Act established the CDFI Fund

To promote economic revitalization and community development

Through investment in and assistance to community development financial institutions

To become a certified CDFI, the financing entity must:

Have a primary mission of promoting community development

Must direct at least 60% of all its Financial Product activitiesin both number and amountto eligible Target Markets

CDFI Fund and certification

Community Development Institution

Community Development Banks

Community Development Credit Unions

Community Development Loan Funds

Community Development Venture Capital Funds

Structure For-profit, depository institutions

Nonprofit, cooperative depository

Primarily nonprofit; some for-profit

Typically for-profit

Regulation FDIC, Federal Reserve, OCC, OTS, and state banking agencies

National Credit Union Administration

Unregulated Unregulated

Capitalization Structure (sources)

Insured deposits and equity

Insured deposits, secondary capital, and equity

Unsecured and secured debt, subordinated debt, and grants

Equity and equity-like debt

Sectors Served Loans and retail financial services for individual and commercial customers

Loans and retail financial services for individuals/ members

Loans for housing, microenterprise, small business, community facilities, nonprofits, and commercial real estate

Equity and debt with equity features to businesses with high growth potential and social impact

CDFI Institution Types

IFF Overview

At IFF, we believe that every person has the right to a good education, fresh food, health care, and affordable housing, and to grow up in a safe environment, regardless of income level. And we are here to provide you and your organization with the tools and resources to help your community thrive for years to come. Joe Neri, IFF CEO

708 $597.7MM $1.9

billion 62,630 1,305

Jobs created/ maintained

Project costs Loan volume Real estate

projects Number of

closed loans

IFF overall performance

A focus on low-income communities & special needs populations throughout the Midwest

Leading comprehensive community development

Public Policy

Lending and Finance

Real Estate Development and

Consulting

Research

Community Strategies

Transactions

Madison County Community Health Center Anderson, IN

Pogues Run Grocers Indianapolis, IN

Opportunities to Partner Investing Grants capacity building, research, real estate solutions,

complementary components Participations, co-lending Convening

Questions

Contact Information Nate Lichti Director of Real Estate Services, Indiana 317 860 6904 [email protected]

Kirby Burkholder VP and Executive Director, Eastern Region 313 309 7820 [email protected]

mailto:[email protected]:[email protected]


Impact Investing Capital Deployment Strategies

NORTHERN TRUST SOCIAL IMPACT ADVISORS

Deborah Kasemeyer Senior Vice President Director Community Development & Investments

May 18, 2016

Indiana Philanthropy Association


IMPACT INVESTING: COMMUNITY DEVELOPMENT INVESTING

Community Development Investing can be further defined as an intentional subset of Impact Investing

Community Development Investments

Place Based or Issue Area

Intentional impact creation

Focused on capital deployment tools

Focused on underserved communities or populations

Filling an identified capital gap


IMPACT THROUGH COMMUNITY DEVELOPMENT INVESTING

Place based or issue area investments to support sustainable positive change over time

Grants Important source of capital

Program support Capital Campaigns

Guarantees, Subordination

Attraction and leverage tool Debt Equity

Program Related

Investments

Sustainable Grant Debt Equity

Portfolio Direct Impact

Debt Equity

Foundation Community Development Investing


COMMUNITY DEVELOPMENT IMPACT INVESTMENTS

Overview of Northern Trust Impact Investments by Type

CDFI

Grants


Loan Pools

Guarantees

Bonds

Direct Nonprofit

Grants


Social Impact Bonds

Front Funding of a Social Intervention


Grants

Tax Advantaged

Low Income Housing Tax Credits

New Market Tax Credits

SBIC/Equity Funds

Venture Capital Funds

Equity Funds

.


COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS


COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS

Community Development Financial Institutions have a long track record of delivering measurable, sustainable positive change in underserved community through increased access to capital

Grants

Loan Funds

Direct Debt

Equity

Loan Loss Reserves Special Projects

Aggregate Capital Repayment & Rate

Pass through

Structured Possible Restrictions

Funds Stock

Types of Investments in CDFIs


EXAMPLES OF INVESTMENTS IN CDFI

Grants

Northern provided a $250,000 grant to Northside Federal Credit Union, a CDFI and Low Income Credit Union to be used as a loan loss reserve for an Alternative Payday Loan Product

Loan Funds

We have a $15 million commitment into IFFs most recent loan pool which allows IFF to have its funding source match its loan terms

Direct Debt

Provided a $1 million general obligation debt investment to Atlanta Neighborhood Development Partners for loan capital it used to originate affordable housing loans

Equity

$10 million stock purchase in Urban Partnership Bank, a start up CDFI bank in Chicago which purchased the assets of ShoreBank


DIRECT NONPROFIT INVESTMENT


DIRECT INVESTMENT IN A NONPROFIT

Investments can also be made directly into nonprofits which have an identified repayment source and can start to generate or increase impacts with patient low cost capital

Colorado Coalition for the Homeless Land Control

The Resurrection Project/Loyola Medical School DCCA Students

YWCA of Miami Capital Project

Habitat for Humanity

Akola Social Enterprise Business

Examples


SOCIAL IMPACT BOND


SOCIAL IMPACT BONDS

Government and Charity are typically focused on safety nets rather than prevention through intervention


SOCIAL IMPACT BONDS CLOSED TO DATE IN THE US New York City Recidivism reduction at Rikers Island Prison (08/12)

Salt Lake County Special education avoidance (06/13)

New York State Recidivism reduction and labor force reentry (12/13)

Massachusetts Prison avoidance and employment support (01/14)

Chicago Special education avoidance (10/14)

Massachusetts Supportive housing for the homeless (12/14)

Cuyahoga County Foster care avoidance (12/14)

Santa Clara County Supportive housing for the homeless (07/15)

Denver Supportive housing for the homeless (02/16)

South Carolina Home visiting for low-income mothers (02/16)

Connecticut Family-based substance abuse treatment (02/16)

Utah Recidivism and homeless reduction (11/16)

Utah- Recidivism and substance abuse (11/16)

Santa Clara County Treatment for the severely mentally ill (02/17)


SOCIAL IMPACT BONDS Also known as Pay for Success is finance transactions which focus on the financing of a social intervention which generates contracted impacts that are paid for by an end payer


CHICAGO PRE K SOCIAL IMPACT BOND

Total investment of $16.8 million adding 2,620 additional Pre- K slots in high quality program


DENVER SOCIAL IMPACT BOND

Total investment of $8.6 million providing housing and wrap around services for 250 homeless individuals who are high utilizers of safety net services

Housing Stability

City only pays if a participant spends at least one year in housing City pays $15.12 for each day spent in housing minus the number of days that a participant spends in jail (both for the 1st year in housing and days thereafter) If participant does not meet one year threshold, providers can replace that unit with a new participant

Jail Reduction

Payments made based upon the percentage reduction seen between participants and non-participants over at least three years No payments made below a 20% reduction in jail bed days Maximum payment at a 65% reduction in jail bed days

SIB CONTRACT OUTCOMES:

Housing Stability Lenders

Northern Trust Company The Ben and Lucy Ana Fund at the Walton Family Foundation The Piton Foundation

$3,000,000 $1,000,000

$500,000 Jail Bed Day Reduction Lenders

Laura and John Arnold Foundation $1,700,000 The Colorado Health Foundation $1,000,000 The Denver Foundation Living Cities Blended Catalyst Fund

$500,000 $500,000

Nonprofit Finance Fund $434,696

Investors

Housing Stability Lenders

Northern Trust Company

The Ben and Lucy Ana Fund at the Walton Family Foundation The Piton Foundation

$3,000,000

$1,000,000

$500,000

Jail Bed Day Reduction Lenders

Laura and John Arnold Foundation

$1,700,000

The Colorado Health Foundation

$1,000,000

The Denver Foundation

Living Cities Blended Catalyst Fund

$500,000

$500,000

Nonprofit Finance Fund

$434,696

VISION | ECONOMICS | STRATEGY | FINANCE | IMPLEMENTATION

NEW MARKETS TAX CREDITS: A TOOL TO STRETCH AND SUPPLEMENT MISSION-DRIVEN

CAPITAL Tony Smith, SB Friedman Development Advisors


NEW MARKETS TAX CREDIT PROGRAM

Administered by U.S. Department of the Treasury

Flexible federal tax credit program that generates below-market capital for community and economic development projects

Primarily supports industrial, community facility, and commercial development in qualifying Low Income Census tracts

Funds can be spent on any legitimate business purpose associated with the project/business, including construction, equipment, working capital, etc.

NMTC capital must be deployed in qualifying Census tracts

Indiana is now a high needs state


Jessie Ball DuPont Fund, a Jacksonville-based foundation, stepped in with a vision.

The Strategy:

Renovate the Haydon Burns building into a 120,000sf hub and incubator for nonprofits

Reducing nonprofits cost structures via: Below-market rents State-of-the-art shared IT systems Shared purchasing

Increasing nonprofits effectiveness and raising

their profile via: Multiple conference and event spaces Shared training facilities on-site Increased opportunities for partnerships

and collaborations between organizations

JESSIE BALL DUPONT CENTER: STRENGTHENING AND INTERCONNECTING JACKSONVILLES NONPROFITS


NORTHERN TRUST NEW MARKET ALLOCATION

Northern received a $60 million allocation in late 2016

Focus Areas:

Comprehensive Community Development Place Based

Innovative Structures such as Operating Businesses

Smaller deal size

Greater inclusion in transactions

Transactions:

Purpose Built Schools

Tacoma Park District

Hope Works

Student U

Denver Housing Authority

Bridges to Work


SMALL BUSINESS INVESTMENT CORPORATIONS


SMALL BUSINESS INVESTMENT CORPORATIONS

Small Business Investment Corporations (SBIC) are venture capital funds with an SBA debenture focused on smaller size companies

SBIC investments can create significant job growth

Tie to underserved communities can be difficult to determine

Venture capital investments can create negative community impacts

Portfolio approach needed to mitigate risks

Same venture model can be used to create impact investment funds around specific issue areas with significant potential for impacts and financial return but also same risks


CONTACT INFORMATION Deborah Kasemeyer

Senior Vice President, Director Community Development & Investments

50 South La Salle Street, Chicago, Illinois 60603 USA

+1 312-444-4031 [email protected]

mailto:[email protected]


Slide Number 1Impact InvestingSetting the TableImpact Investing definedImpact Investing & TransparencyImpact InvestmentsCommunity Development impact InvestmentsBuilding on Grant ImpactsSlide Number 8Slide Number 9The New FoundationSlide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20The Glass Half-Full Get to Know MeetingsSlide Number 23Get to Know Meeting SummarySlide Number 25Slide Number 26Slide Number 27Slide Number 28Slide Number 29Slide Number 30Slide Number 31IFF OverviewWhat is a CDFISlide Number 34Slide Number 35Slide Number 36Slide Number 37IFF OverviewSlide Number 39Slide Number 40Slide Number 41Slide Number 42TransactionsSlide Number 44Slide Number 45Slide Number 46QuestionsContact InformationSlide Number 49Impact InvestingCapital Deployment StrategiesImpact Investing: Community Development InvestingImpact through community Development InvestingCommunity Development impact InvestmentsCommunity Development Financial institutionsCommunity Development Financial InstitutionsExamples of Investments in CDFIDirect Nonprofit InvestmentDirect Investment in a NonprofitSocial Impact bondSocial Impact BondsSocial Impact Bonds Closed to Date in the USSocial Impact BondsChicago Pre K Social Impact BondDenver Social Impact BondNew Markets Tax Credits:A Tool to Stretch and Supplement Mission-Driven CapitalNew Markets Tax Credit ProgramJessie Ball DuPont Center: Strengthening and Interconnecting Jacksonvilles NonprofitsNorthern Trust New Market AllocationSmall business investment corporationsSmall Business Investment CorporationsContact InformationSlide Number 72

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