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THE SYNEIDESIS GROUP Spring 2014. 2 Impact Investing’s 40 Year Evolution 1970’s – 1990’s: SRI…Religion as innovator, Vietnam, apartheid, environment “NO”

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Presentation on theme: "THE SYNEIDESIS GROUP Spring 2014. 2 Impact Investing’s 40 Year Evolution 1970’s – 1990’s: SRI…Religion as innovator, Vietnam, apartheid, environment “NO”"— Presentation transcript:

1 THE SYNEIDESIS GROUP Spring 2014

2 2 Impact Investing’s 40 Year Evolution 1970’s – 1990’s: SRI…Religion as innovator, Vietnam, apartheid, environment “NO” Significant innovation SRI funds & shareholder activism Microfinance CRA Community banking & CDFIs Clean Air Act Clean Water Act SOX & NOX cap & trade Labeled with underperformance The 2000’s “IMPACT AND/OR RETURNS” Awareness, debate, and education Network: GiiN Metrics: IRIS/GiiRs JPM report Kyoto carbon credits MFI Nobel Prize & IPOs Social enterprise & VC model dominate More than Mission Today “RETURNS FROM IMPACT” Recognize the breadth of “impactful” strategies and asset classes Scale and big levers Transition from “ideal” to reality … 1 st Wave SRI 1 st Wave SRI 2 nd Wave Blended Return 2 nd Wave Blended Return 3 rd Wave Impact Drives Returns 3 rd Wave Impact Drives Returns

3 4 Billion MORE People Eating Meat and Driving Cars 3 Confidential Global macro trends:  Developing world population & middle class  Natural resource consumption  Pollution and climate change costs  Income disparity and inequality Massive market shifts = new risks, opportunities, and value It’s “just” smart macro-trends investing

4 Drivers 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 Companies Opportunity: Community and environmental problems are opportunities for financial innovation at scale Performance: Sustainability is a performance driver…in the long term Institutional Quality: Institutions are entering. 4 Resources CALPERS ESG research database: ess/pr-2013/june/finance-symposium.xml ess/pr-2013/june/finance-symposium.xml CALPERS Protocol (September 2013): docs/about/press/news/invest-corp/board- offsite.pdf docs/about/press/news/invest-corp/board- offsite.pdf Equilibrium Forum – Alan Emkin (Pension Consulting Alliance): WEF Report: mainstream-assessment-impact-investment-sector- and-opportunities-engage-mainstream-i mainstream-assessment-impact-investment-sector- and-opportunities-engage-mainstream-i

5 5 Emergent Themes Long duration vs short term Long term capital vs patient capital Strategies executed in public policy, public interest, and regulation Monetization of trust and authenticity With…  Additionality  Intentionality  Permanence Institutional Impact investing is a new discipline and model: The lessons of impact applied to deliver Sustainable Alpha at institutional 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”.

6 Thesis: Sustainability-driven Real Assets Strategies Higher resource productivity Convert waste into value Create higher value outputs Stewardship management Dynamic operating execution Think long term Consider the whole system Externalities matter 6 Higher Current Yield Long Term Value Confidential Asset Thrives

7 Equilibrium Capital Building the Leaders in Sustainability Driven Real Assets Founded in 2007  2013: $500M+  2014: $ B Real Assets:  Agriculture/Food, Water, Energy, Real Estate  Current income, long-term IRR, and inflation hedge  Uncorrelated to traditional asset classes  Flight towards long lived real assets  Fragmented, significant size, and often few managers Sustainability Driven “alpha” strategies Institutional investor focus Impact at scale 7 Confidential Come for the returns, Stay for the impact

8 Real Assets Sectors and Alpha Generation 8 Renewable Energy Distributed, decentralized, energy generation and efficiency Directly Correlating Sustainable Methodologies and Returns Sustainable Agriculture Reducing chemical inputs, leveraging mechanization, enhancing the soil Equilibrium Sustainable MethodologiesSource of Returns Green Real Estate Mixed use, efficient designs, integrated with the community Water Management Land Stewardship Reclaimed, recycled and efficient use of wastewater streams Optimizing land resource utilization Confidential Multiple revenue streams Reduced input costs Waste/inefficiency into value Higher value outputs Long term enhanced asset productivity

9 Equilibrium Platform

10 Research Drives Our Investment Process 10 Development Strategy Proprietary Research Product Development Fund Launch and Investing Measurement and Reporting Fund Team Formation Proprietary Strategies Superior returns Real assets Long term assets Scale Innovative structures Building Teams Addressing Investors’ Needs 36 to 48 months Process Cost: $2M- $4M Confidential

11 11 ACM Permanent Crop, LLC Investments 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 size Australian Pastoral Fund Investments 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, - $500mm Wastewater Opportunity Fund, LLC Project-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, LP Value-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 projects 7year fund, $ mm targeted size Multi-Strategy Real Assets Vehicle A 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 size Current Product Highlights Confidential

12 Equilibrium Capital Group 12 Building the Global Leader in Sustainability Driven Real Assets Confidential

13 13 Superior value-creation from vertically integrated, sustainable farming Fund Summary Agriculture 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 Highlights Crops mix: Citrus, berries, table grapes, and nuts Geography: 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 control Sustainable farming practices: water management, topsoil protection / enhancement Drivers of returns: organic products offer premium pricing, midstream assets captures margins, sustainable farming practices accumulates value of the croplands ACM Permanent Crops, LLC Fund Features  Fund size: $150-$250 million, minimum investment $1.5 million  Management 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-up  Preferred 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

14 Australian Pastoral Fund Diversified portfolio in the land and operations of Australian grass-fed cattle and beef Fund Summary A 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 Opportunity Global beef consumption is expected to climb 24% by 2020, from 64.5 million metric tons in Australia is the world’s 2 nd 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. 14 Fund Features  Fund size: A$250-A$500  Management fee: 0.75%  Property acquisition management fee: one- time 1% of acquired assets  Current Yield: Targeted 8%-10% current yield  Total IRR: 16% - 20%  Performance Incentive Bonus: 15% of net gains on disposal after 5% compounded annual hurdle  Term: Exit or monetization strategy to be determined by unitholders after 10 years from close Confidential

15 Green Cities Fund II Value-added, sustainable real estate development and investment funds. Fund Summary Gerding 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 Opportunity Rising demand for sustainable workspace and habitat Demographic shift – Gen-Y – towards renting, with home purchases deferred Demonstrable superior returns from LEED products – value-add capital and core capital Retrofit opportunities at least as great as new-builds 15 Fund Features  Fund II size: $250 - $300 million  Management fee: 1.50%  Carried interest: tiered depending on performance (to LPs) to align performance incentives  Returns: targeted at 16% to 18% IRR on invested capital  Term: 7 years from close with two one-year extensions Confidential

16 Wastewater Opportunity Fund Maximizing value from wastewater Fund Summary The 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 Opportunity The 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. 16 Fund Features  Fund size: $150–$250 million (minimum investment of $2.5 million)  Management fee: 2% per annum, attenuating 10% per year after year five  Carried interest: 20%, with catch-up  Preferred return: 8%  Returns: Targeted 16%-18% net IRRs and 8% current income  Term: 7 years with up to 3 one-year extensions (with LP consent) Confidential

17 Multi-Strategy Real Assets Vehicle 17 A multi-manager vehicle, with no management fees or carried interest, providing access to Equilibrium's platform of sustainability-driven real assets investment products Fund Summary No 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 strategies Additional access to funds: Equilibrium to facilitate direct access to Managers Proposed Fund Investments Investments in 4-8 underlying funds on the Equilibrium platform, across multiple regions and five primary sectors. Fund Features  Management fee: None (admin. expenses only)  Carried interest: None  Returns: Targeted at 6% to 7% blended current returns, and 15% net total IRR  Term: Based on underlying funds; est. 12+ years  Allocation method: Equally distributed as available, no more than 25% in any fund/product, no more than 50% of any first-close. Fund 1: ACM Permanent Crops Fund I Vertically integrated, sustainable permanent crops Fund 2 : Green Cities Fund II Value-added and opportunistic green real estate Fund 3: Wastewater Opportunity Fund New opportunities in wastewater efficiency Fund 4: Australian Pastoral Fund Diversified portfolio of grass-fed livestock and land Future Strategies 2-4 additional strategies under development Targeted Agriculture EnergyReal EstateWaterLand Sectors Equal allocation into funds actively in market and accepting investors’ capital at each vehicle pool closing, during open period Confidential

18 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. Disclaimer and Forward-Looking Statements


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