2Impact Investing’s 40 Year Evolution 1st WaveSRI2nd WaveBlended Return3rd WaveImpact Drives Returns1970’s – 1990’s: SRI…Religion as innovator, Vietnam, apartheid, environment“NO”Significant innovationSRI funds & shareholder activismMicrofinanceCRACommunity banking & CDFIsClean Air ActClean Water ActSOX & NOX cap & tradeLabeled with underperformanceThe 2000’s“IMPACT AND/OR RETURNS”Awareness, debate, and educationNetwork: GiiNMetrics: IRIS/GiiRsJPM reportKyoto carbon creditsMFI Nobel Prize & IPOsSocial enterprise & VC model dominateMore than MissionToday“RETURNS FROM IMPACT”Recognize the breadth of “impactful” strategies and asset classesScale and big leversTransition from “ideal” to reality…
34 Billion MORE People Eating Meat and Driving Cars Global macro trends:Developing world population & middle classNatural resource consumptionPollution and climate change costsIncome disparity and inequalityMassive market shifts = new risks, opportunities, and valueIt’s “just” smart macro-trends investingConfidential
4Drivers from Macrotrends Duration: Sustainability, resource constraints of fundamental importance in long-lived assets (real assets)Integration: risk allocation, risk appropriate returns, and risk management are about sustainability factors. ESG, Benefit CompaniesOpportunity: Community and environmental problems are opportunities for financial innovation at scalePerformance: Sustainability is a performance driver…in the long termInstitutional Quality: Institutions are entering.ResourcesCALPERS ESG research database:CALPERS Protocol (September 2013):Equilibrium Forum – Alan Emkin (Pension Consulting Alliance):WEF Report:
5Institutional Impact investing is a new discipline and model: Emergent ThemesInstitutional Impact investing is a new discipline and model:The lessons of impactapplied to deliverSustainable Alphaatinstitutional scale.“The mission investors know the right words, but often are unclear how they apply.The financial investor knows the right words, know what they mean, but don’t know how they are applied”.Long duration vs short termLong term capital vs patient capitalStrategies executed in public policy, public interest, and regulationMonetization of trust and authenticityWith…AdditionalityIntentionalityPermanenceThis is about cash flows, finding value differences, understanding motivationsExamples of currency?
6Thesis: Sustainability-driven Real Assets Strategies Higher resource productivityConvert waste into valueCreate higher value outputsStewardship managementDynamic operating executionThink long termConsider the whole systemExternalities matterAsset ThrivesHigher Current YieldLong Term ValueConfidential
7Equilibrium Capital Building the Leaders in Sustainability Driven Real Assets Founded in 20072013: $500M+2014: $ BReal Assets:Agriculture/Food, Water, Energy, Real EstateCurrent income, long-term IRR, and inflation hedgeUncorrelated to traditional asset classesFlight towards long lived real assetsFragmented, significant size, and often few managersSustainability Driven “alpha” strategiesInstitutional investor focusImpact at scaleCome for the returns,Stay for the impactConfidential
8Real Assets Sectors and Alpha Generation Equilibrium Sustainable MethodologiesSource of ReturnsRenewable EnergyDistributed, decentralized, energy generation and efficiencySustainable AgricultureReducing chemical inputs, leveraging mechanization, enhancing the soilMultiple revenue streamsReduced input costsWaste/inefficiency into valueHigher value outputsLong term enhanced asset productivityGreenReal EstateMixed use, efficient designs, integrated with the communityWater ManagementReclaimed, recycled and efficient use of wastewater streamsLand StewardshipOptimizing land resource utilizationDirectly CorrelatingSustainable Methodologies and ReturnsConfidential
10Research Drives Our Investment Process Proprietary Research36 to 48 months ProcessCost: $2M- $4MDevelopment StrategyProprietary StrategiesSuperior returnsReal assetsLong term assetsScaleInnovative structuresBuilding TeamsAddressing Investors’ NeedsFund Team FormationProduct DevelopmentFund Launch and InvestingMeasurement and ReportingConfidential
11Current Product Highlights ACM Permanent Crop, LLCInvestments in permanent cropland and synergistic midstream assets to create a vertically integrated, sustainable farming enterprise that grows, packs and markets high-value produce. Focused on management and operational improvements using Agriculture Capital Management’s proven expertise.10-year fund, $ mm targeted sizeAustralian Pastoral FundInvestments in the land and operations of grass-fed cattle and sheep in Australia. Targets 500,000 cattle and 1 million sheep for domestic and export markets. This is the fund manager’s third pastoral fund dedicated to sound environmental, animal welfare and human resources management practices.10+years fund, - $500mmWastewater Opportunity Fund, LLCProject-level capital for the development and operations of waste to revenue bio-processing facilities. Initial proprietary projects include U.S. bio-processing developers in livestock/agriculture and food processing.7-year fund, $ mm targeted size`Gerding Edlen Green Cities II, LPValue-added, sustainable real estate development and investment funds. Focused on urban, in-fill, office, apartment and mixed-use properties in the U.S. from one of the world’s leading developers of LEED-certified properties with over 50 certified or registered LEED projects., of 60 green projects7year fund, $ mm targeted sizeMulti-Strategy Real Assets VehicleA multi-manager vehicle, with no management fees or carried interest, from Equilibrium's platform of sustainability-driven real asset investment products.12+ years vehicle, 2014 pooling period, $250 million maximum pool sizeConfidential
12Equilibrium Capital Group Building the Global Leader in Sustainability Driven Real AssetsConfidential
13ACM Permanent Crops, LLC Superior value-creation from vertically integrated, sustainable farmingFund SummaryAgriculture Capital Management is managed by AgriCare and Equilibrium Capital. AgriCare is one of the largest managers of permanent cropland in the U.S. And operates 11,000 acres of farmland, as well as midstream assets (processing, packaging and storage facilities), for institutional investors and other farmland owners, totaling $165 million in asset value. AgriCare also manages a marketing/distribution operation with its own brand (HomeGrown Organic Farms).Investment HighlightsCrops mix: Citrus, berries, table grapes, and nutsGeography: western U.S. (California, Oregon, other)Targeted assets portfolio: Existing cropland 70%, development land 30%Midstream assets: captures greater share of economics between retail market(s) and farm production, quality control, process controlSustainable farming practices: water management, topsoil protection / enhancementDrivers of returns: organic products offer premium pricing, midstream assets captures margins, sustainable farming practices accumulates value of the croplandsFund FeaturesFund size: $150-$250 million, minimum investment $1.5 millionManagement fee: 1.5%Bonus in years where current income exceeds preferred return; capped at 0.5% addition to management fee.Carried interest: 15% with catch-upPreferred return: 8%Targeted Fund returns: current income from crop operations (8%-10%) plus capital return from sustainable land use practices, totaling 12%-14% IRR (net)Term: 10 years (+2 one-year extensions)Confidential
14Australian Pastoral Fund Diversified portfolio in the land and operations of Australian grass-fed cattle and beefFund SummaryA portfolio of Australian grassland properties and livestock for domestic and export markets, diversified by region and climate zone. Targets 500,000 grass-fed cattle and one million sheep using sustainability, mobility and technology as integral to operations. This is the Fund manager’s third pastoral fund dedicated to sound environmental, animal welfare and human resources management practices.Market OpportunityGlobal beef consumption is expected to climb 24% by 2020, from 64.5 million metric tons in 2011.Australia is the world’s 2nd largest beef exporter after Brazil.Rising incomes and growing populations in emerging markets are fueling demand for farm products including proteins, helping push global food costs 1.9% higher in January (the most in 11 months), according to the United Nations.Fund FeaturesFund size: A$250-A$500Management fee: 0.75%Property acquisition management fee: one- time 1% of acquired assetsCurrent Yield: Targeted 8%-10% current yieldTotal IRR: 16% - 20%Performance Incentive Bonus: 15% of net gains on disposal after 5% compounded annual hurdleTerm: Exit or monetization strategy to be determined by unitholders after 10 years from closeConfidential
15Green Cities Fund IIValue-added, sustainable real estate development and investment funds.Fund SummaryGerding Edlen, based in Portland, Oregon, is recognized worldwide as the leading sustainable real estate developer, having completed more than 50 completed projects throughout the United States. Similar to their first fund, Green Cities Fund II is a value-added fund to invest in development capital of selected real estate projects. Projects are in the United States, generally in growing urban centers, and are mixed-use (residential / office / retail) and LEEDS platinum. Value is generated from buildings where people want to live and work, which communities are proud to have as neighbors, and which operate more energy, water and waste more efficiently.Market OpportunityRising demand for sustainable workspace and habitatDemographic shift – Gen-Y – towards renting, with home purchases deferredDemonstrable superior returns from LEED products – value-add capital and core capitalRetrofit opportunities at least as great as new-buildsFund FeaturesFund II size: $250 - $300 millionManagement fee: 1.50%Carried interest: tiered depending on performance (to LPs) to align performance incentivesReturns: targeted at 16% to 18% IRR on invested capitalTerm: 7 years from close with two one-year extensionsConfidential
16Wastewater Opportunity Fund Maximizing value from wastewaterFund SummaryThe Wastewater Opportunity Fund will provide project-level capital to leading developers that design, build and operate projects in the agricultural waste, food waste and municipal wastewater sectors. Farms, food processing facilities and municipalities are burdened by high waste removal costs, fines related to strict wastewater discharge constraints, volatile energy costs, and increasing air pollution restrictions. The Fund solves capital constraints faced by these projects that require less than $25 million and that generate valuable revenue streams from the energy and nutrients that are embedded in wastewater.Market OpportunityThe Fund’s targeted sectors and addressable wastewater market include over 4,250 potential projects representing $30.4 billion of total project capital requirements in the next five years.Wastewater efficiency solutions benefit from favorable existing legislation and are experiencing strong, growing demand as farms, food processors, communities and municipalities attempt to address waste management problems, including high disposal costs, greenhouse gas emissions, odor, pollution, contamination and capacity limitations.The projects generate revenue from renewable electricity or gas, nutrients, environmental credits and byproducts, often through long-term revenue agreements with credit-worthy counterparties. The Fund’s portfolio will establish these well-defined performance contracts and enable a variety of potential Fund exit strategies that 1) are enhanced by the ability to aggregate projects and 2) can be realized in the absence of a robust public market or mergers and acquisitions activity typically required by clean technology or water rights funds.Fund FeaturesFund size: $150–$250 million (minimum investment of $2.5 million)Management fee: 2% per annum, attenuating 10% per year after year fiveCarried interest: 20%, with catch-upPreferred return: 8%Returns: Targeted 16%-18% net IRRs and 8% current incomeTerm: 7 years with up to 3 one-year extensions (with LP consent)Confidential
17Multi-Strategy Real Assets Vehicle A multi-manager vehicle, with no management fees or carried interest, providing access to Equilibrium's platform of sustainability-driven real assets investment productsFund SummaryNo fee, no carry: Only actual costs to administer the Fund.Equilibrium participates through its ownership interest in underlying managers.Not a blind pool: A significant portion of the portfolio has already been identified. At each pool closing, capital will be invested in funds actively accepting investors capital.Targeted current income: Current returns reflect long-term productive economics of underlying real asset strategiesAdditional access to funds: Equilibrium to facilitate direct access to ManagersProposed Fund Investments Investments in 4-8 underlying funds on the Equilibrium platform, across multiple regions and five primary sectors.Fund FeaturesManagement fee: None (admin. expenses only)Carried interest: NoneReturns: Targeted at 6% to 7% blended current returns, and 15% net total IRRTerm: Based on underlying funds; est. 12+ yearsAllocation method: Equally distributed as available, no more than 25% in any fund/product, no more than 50% of any first-close.Targeted Agriculture Energy Real Estate Water LandSectorsEqual allocation into funds actively in market and accepting investors’ capital at each vehicle pool closing, during open periodFund 1: ACM Permanent Crops Fund I Vertically integrated, sustainable permanent cropsFund 2: Green Cities Fund II Value-added and opportunistic green real estateFund 3: Wastewater Opportunity Fund New opportunities in wastewater efficiencyFund 4: Australian Pastoral Fund Diversified portfolio of grass-fed livestock and landFuture Strategies2-4 additional strategies under developmentConfidential
18Disclaimer and Forward-Looking Statements The information contained herein and any other forms of communication related thereto are for information purposes only, and should not be regarded as an offer to sell or a solicitation of an offer to invest in any security. Past performance is not indicative or a guarantee of future performance. Equilibrium Capital is not a registered investment advisor and does not provide tax, accounting, or legal advice. Investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. This information and all the material shared in conjunction with it whether verbal or oral are confidential.