Presentation on theme: "California Initiative Update. 2 Mission Statement The California Initiative will invest in traditionally underserved markets primarily, but not exclusively,"— Presentation transcript:
California Initiative Update
2 Mission Statement The California Initiative will invest in traditionally underserved markets primarily, but not exclusively, located in California. The objective is to discover and invest in opportunities that may have been bypassed or not reviewed by other sources of investment capital. To earn attractive risk-adjusted returns As an ancillary benefit, to have a meaningful impact on the economic infrastructure of California Underserved Markets Objectives
3 Underserved Market Opportunity Companies located in areas where access to institutional equity capital is limited Companies that employ workers who reside in economically disadvantaged areas Companies with female and/or minority management Underserved markets are less efficient and have the potential to provide superior investment performance Investment Opportunity
4 California Initiative Partners Bank of America Fund-of-Funds CORPORATE / BUYOUT Pacific Community Ventures American River Ventures DFJ Frontier VENTURE Opportunity Capital Provender Capital MIDDLE MARKET Green Equity Investors Nogales Investors GROWTH/ EXPANSION SEED Yucaipa Corporate Initiatives Fund Garage Entrepreneurs Fund Fund
5 May 2001CalPERS Investment Committee approved the California Initiative Program $475 million of commitment 10 partnerships November 2001 First investment made by California Initiative Fund November 2004 Staff presented an initial update on the Program - Approximately 21% of the Program’s capital invested Investment Committee directed staff to enhance reporting of the Program, including a thorough assessment of the ancillary benefits March 2005Staff completed project design and subsequently engaged Pacific Community Ventures (“PCV”) and LP Capital Advisors (“LPCA”) to assess the ancillary benefits of the Program December 2005 Initial assessment and report completed by PCV and LPCA Over 50% of the Program’s Capital invested History & Milestones
6 California Initiative Performance Results As OfSeptember 30, 2005June 30, 2004 Total Cash In$253.1 million (53%)$99.5 million (21%) Total Cash Out$7.9 million$5.3 million Reported Value + Cash Out$251.6 million$74.9 million Net Gain (Loss) 1 $(1.4) million$(24.7) million Multiple on Invested Capital1.0x0.8x Net IRR 1 (0.4)%(22.4)% 1-Year Net IRR16.3%(11.1)% Investment returns to date are less meaningful due to the young age of the Program (i.e. the J-Curve Effect that affects all private equity fund investments)
Ancillary Benefits Assessment
8 Underserved Market Benchmarks ●Companies located in areas where access to institutional equity capital is limited: ~Companies located outside the top 100 postal codes for receiving venture capital investment. (These top 100 postal codes received 30% of venture capital investment dollars between 2000 and 2005.) ●Companies that employ workers who reside in economically disadvantaged areas: ~Companies where at least 25% of California employees live in a zip code designated economically disadvantaged. ●Companies with female and/or minority management: ~Companies where at least one officer (e.g. CEO, COO, CFO, CIO) is female or ethnic/racial minority.
9 ●Of 68 companies 1 : 48 are headquartered in California 51 employ a significant proportion of their workforce in California 37 have been in the portfolio for one year or more Since investment, these companies have created nearly 2,500 jobs, including nearly 600 in California ●CA Initiative companies employ over 5,000 Californians, including approximately 2,000 who live in economically disadvantaged areas of the state ●Over 170 distribution, retail and other facilities located across California 1 Active California Initiative companies (as reported in the Initial Assessment Report) Strong Presence in California
10 Location 75% of California Initiative Companies are Headquartered or Have a Significant Presence in California
11 Comparison to Benchmarks ●Of 68 companies, 65 are directly impacting underserved markets ●Of the 48 companies headquartered in California, 45 are directly impacting underserved markets ●Many companies reach underserved markets in multiple ways
12 Comparison to Benchmarks Of the 68 Companies: ●51 companies (75%) are headquartered in areas of US where access to institutional equity is limited; 35 of these are in California. ●39 companies (57%) have at least one female or minority owner or officer (e.g. CEO, CFO, COO, CIO). ●32 companies (47%) have a workforce where at least 25% of California employees live in disadvantaged areas.
13 Banc of America Capital Access Funds Invested in 8 private equity partnerships, 2 others approved All 10 partnerships contribute to meeting at least one California Initiative objective: 7 focus on ethnic minority opportunities 5 focus on employing workers from disadvantaged areas 2 improving access to capital, capitalizing financial institutions that serve low income/minority communities 8 have at least one female or minority partner 8 have offices in California
14 California Initiative Summary Performance is improving ● Climbing out of the J-Curve ● Real value being created in the portfolio ● Still fairly early in Program’s life (limited liquidity to date) Partners continue to find attractive opportunities in CA The analysis and reporting of financial results and ancillary benefits of the California Initiative are greatly enhanced Staff will provide the Investment Committee with regular updates on financial and non-financial highlights of the Program Ancillary benefits assessment report to be completed annually
15 California Initiative: Case Study CompanyGraphic Press (www.graphicpress1.com) CalPERS PartnerNogales Investors Company Description High end minority owned commercial printer in Commerce, CA Received Corporate Plus Distinction-signifying top minority supplier status Named by Fortune Magazine as a top minority owned business in the US Named by Hispanic Business Magazine as Top 101 Minority -Owned Business Strong Revenue Growth since Investment Meeting the California Initiative Underserved Market Benchmarks Graphic Press is located in an area where access to institutional equity capital is limited Nearly 50% of the Company’s employees reside in economically disadvantaged California communities 40% of the Co.’s officers are either female or ethnic minority Nogales Investors’ Value Add Actively utilized their network to refer new clients Focused management on minority supplier opportunities Implemented initiative to improve operating margins Obtained significant third-party growth capital resulting in workforce expansion (which is 70% minority)