Extracting the Value of Social Return Reporting Pension Funds: Investing to Build Strong and Sustainable Communities Harvard Law School, June Research Funded by Kauffman Foundation

Institutional Investors: Public Pension Funds Funds of funds 18 Private Equity Funds ~120 Portfolio Companies Owned (led) by women or minorities; Located in/employing residents of, LMI areas; In areas with limited access to capital; Serving minority markets. BACAF Investment Profile

Investment Profile Differs From Traditional VC…. More Traditional Business Sectors Geographic Diversity < $1M $1-10M Company Sizes Range Smaller …. Financial Return Objectives Do Not. “… financing MBE’s offers high returns due to the existence of an underserved market.” - Bates and Bradford, 2007

 Employment □Minority-owned firms employ 4.7 million workers. □Minority-owned firms more likely to hire minorities.  Entrepreneurship Minority & Women owned businesses under-represented and under-capitalized.  Economies □Inner City & Rural firms create jobs where most needed. For example, "Inner City 100” employ 73,000 (nearly half inner-city residents).  Environment? Underserved Market Investing Has Ancillary Social Returns

# of funds invested Total fund size ~$1B ~$2.2 ~$3.8B # of companies # employees 5,027 13,508 12,636 75% reporting The data presented on this slide is incomplete and preliminary, prepared for purpose of this presentation only. BACAF Results

Underserved (All Categories) 70% Entrepreneurship % minority controlled 32%* % women controlled 4%* Economies % in LMI communities 35% Underserved market 9%** Employment % minority 34%** % female 42%** % health insured 50%** % retirement 33%** The data presented on this slide is incomplete and preliminary, prepared for the purposes of this presentation only. *91/120 companies ever funded reporting. ***About half of active companies reporting (between 53 and 65 out of 113 active portfolio companies

Ways to address Fund resistance   Confidentiality   Added work   Consistency? Accuracy? Bias? Practical Matters   Tradeoffs between realistic and ideal.   Who pays?   How long & often? Exits/Post-Exit? Financial Results? Leverage?   Conventions for analyzing heterogeneous investments How to realize value from the information?   Build a meaningful benchmark; Will there ever be standard(s)?   How can social impact reporting attract more, scale capital? Lessons to Learn

Moving from custom measurement to… Define a space or policy Screen investments – to “get in the room” Report - Tracking & documenting clearinghouse(s) Benchmark relative performance Quantify impact – impact policy, drive innovation

Attract Scale Capital -- Identify benefits without the capital having to do much new work. Draw innovative capital – human and financial – into high-impact activities. Financial Investor Return Priority Social Output Indicators Impact Efficient, Standardized Specialized; Hard to replicate; Matches specific programs Define Screen Report Benchmark MeasureImpact

Either way, measurements are key. Different forms of measurement have different values to different investors from pension funds to foundations. From the institutional, scale-investor standpoint, is it a… 1.High Level ETI Classification? 2.Rating System? 3.Specialized Impact Analysis? “What are we after here - more capital or better results?” -Betsy Zeidman