1 Measuring the Social and Environmental Impacts of Private Equity Investments: Meeting the Challenges—Examples from the Field December 11, 2007

2 Agenda  Why measure social return?  Brief Introduction to Pacific Community Ventures  Measuring SROI on Private Equity  Example—CalPERS California Initiative  Process  Challenges/Solutions  For more information

3 Financial return is primary.

4 Why measure social return?  Public pension funds—  Are your ETI’s producing benefits in your geography? If not, why bother? How do you know?  Are you having a bigger impact in your state than you know?  Third party fund managers—  Demonstrating specific, measurable community benefits alongside competitive financial returns is a compelling competitive advantage—will attract more capital.  All investors who care about social outcomes—  Show that you are producing competitive financial return AND significant social return—it can be done!  What you measure, you can increase.

5 $60 million under management  PCV’s portfolio  Consulting clients Pension Funds 3rd-Party Mgrs Foundations Capacity building for small businesses Asset-building for lower income workers

6 Example: CalPERS California Initiative  $975 million ETI  $475 million allocated in 2001, 10 funds, 100+ companies  $500 million allocated in 2006, committed to third-party fund-of-funds manager.  Objectives:  To earn attractive risk-adjusted returns  As an ancillary benefit, to have a meaningful impact on the economic infrastructure of California’s underserved communities. To invest in companies: Located in areas where access to institutional capital is limited That employ workers who reside in economically disadvantaged areas With female and/or minority management or ownership

7 CalPERS California Initiative— Non-Financial Outcomes PCV conducts an annual evaluation of the non-financial outcomes for the entire $975 million commitment.

8 Results: Providing capital to areas that historically had limited access to institutional equity capital.

9 Results: Employing workers living in economically disadvantaged areas

10 Results: Supporting women and minority entrepreneurs and managers

11 Data Categories  Varies with client objectives  Hourly and salaried wages  Job quality Health insurance Asset-building Training Opportunities for advancement  Employee tenure  Patents  In-state and minority supplier relationships  Community and environmental initiatives  Corporate philanthropy

12 Measuring the California Initiative’s Community Outcomes--Process  Identify key metrics—the “yardsticks”  Develop survey instruments  Work through the funds to collect data from each portfolio company. Very high participation rates (90%+)  Analyze and compile comparative statistics  Report  Conduct annually, beginning in 2005

13 Challenges and Solutions ChallengeSolution Fund manager/Company resistanceSet expectations—include in term sheets NDAs. Re reasonable. Respect trade secrets. Designing rigorous, credible, but still feasible metrics No “one size” solution. What do you really want to know? What indicators might tell you what you want to know? Company time constraintsKeep the survey simple—ask for data companies already have and take it in the form they have it. Company confidentialityStrict NDAs; report only in the aggregate Employee privacyGeneralize the metric—e.g., use zip code and/or wage; report on area diversity rather than individual ethnicity. Desire for proof “beyond a reasonable doubt” Be realistic—measure outcomes/outputs not impacts—but use relevant comparison sets. Standard of proof is “preponderance of the evidence.”

14 For More Information Beth Sirull Director Pacific Community Ventures