1 Public Pension Funds and Targeted Investing December 6, 2006

2 Agenda  Brief Introduction to Pacific Community Ventures  Overview of CalPERS California Initiative  PCV’s work Evaluating Community Outcomes for CalPERS’ California Initiative

3 Overview of PCV San Francisco Los Angeles San Diego Fresno Mission Pacific Community Ventures provides resources and capital to businesses that have the potential to bring significant economic gains to low-income communities throughout California. We do this by providing access to: Capital Networks Assets Information

4 Overview of PCV Pacific Community Ventures Provides Access to: 501 (c) 3 Nonprofit For Profit Information Capital Networks Assets Asset-Building Services for Workers Helping workers gain access to assets through Individual Development Accounts, financial literacy training, equity-sharing and other programs Evaluation Consulting & Knowledge Sharing Assessing SROI on PCV’s portfolio, providing evaluation consulting to institutional investors and sharing learnings through policy papers, speaking engagements and working groups. Equity funds LLC I LLC II LLC III Business Advisory Services Building capacity at small businesses located in or near, and hiring from, low and moderate income areas of California Good Jobs & Workforce Development Financial Returns Expanded Small Business Capacity Actionable Knowledge for Continuous Improvement

5 CalPERS California Initiative  Established in 2001, $475 million, 10 funds (including PCV LLC II), 100+ companies and growing  Mission: To invest in traditionally underserved markets primarily, but not exclusively, located in California. To discover and invest in opportunities that may have been bypassed or not reviewed by other sources of investment capital.  Objectives:  To earn attractive risk-adjusted returns Financial returns are tracking well  As an ancillary benefit, to have a meaningful impact on the economic infrastructure of California Underserved Markets. 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

6 CalPERS California Initiative  PCV selected to evaluate non-financial outcomes in 2004  Initial assessment of non-financial outcomes completed in 2005:  Identified key metrics—What is the “yardstick” for determining if a company: Is located in an area where access to institutional capital is limited Employs workers who reside in economically disadvantaged areas Has female and/or minority management or ownership  Developed data collection instruments  Oriented participating funds  Collected/analyzed data  Compiled comparative statistics  Published report & communicated to board & stakeholders  PCV conducting annual evaluation of non-financial outcomes

7 Results ObjectiveMetricsResults Is located in an area where access to institutional capital is limited Outside of area where approximately 75% of all venture capital has been concentrated Approximately 40% of companies Employs workers who reside in economically disadvantaged areas. 1.% of workers living in LMI areas (CA only) 2.# of company facilities located in LMI areas (CA only) 3.# of companies offering health insurance and other benefits to LMI workers (job quality) 4.Overall job growth vis a vis California and the United States 1.Approx 40% of CA Initiative employees residing in CA live in an LMI area. 2.Approx 30% of all facilities are in LMI areas 3.80+% of companies offer health coverage to more than 75% of workers. 4.Employment growth in CA Initiative companies has far exceeded employment growth in CA and the nation, even when broken out by company size. Female and/or minority management or ownership 1.# of female/minority officers and/or key managers at CA Initiative companies 2.# of companies with officers/key managers who are minorities/women (compared to the number at similar companies across the state and nation.) Compares favorably. Example: 5% of CA Initiative company officers are African American. Only 1% of similar companies in CA and the US are owned by African Americans.

8 Results—We also look at:  Company size (by employment)  Companies w/ <100 employees are substantial majority of CA Initiative companies. These companies employ a relatively small percentage of all CA Init company employees, but employment at these companies is growing far faster than at larger companies (in both absolute and relative terms).  California employment  Companies w/ <500 workers employ small proportion of all CA Initiative employees, but nearly half of all California-based employees  A few, very large companies employ large proportion of CA Initiative employees, but most of these employees are outside CA. These companies provide necessary portfolio diversity.  Regional differences within CA  PCV’s evaluation showed that CA Initiative resources are helping to generate economic activity in the Central Valley, but investment dollars are not flowing to companies based in the area, prompting increased focus in the Central Valley.  Supplier relationships  Deeper tracking of trend data for companies in the portfolio for multiple years.  At exit, analysis of total impact of companies’ participation in the portfolio.

9 Lessons learned  Approach  Year I—established benchmarks and reported on the extent to which companies met them.  Year II—Providing substantially more sensitivity analysis, creating thresholds along a continuum based on the data.  Appearance  Year I—Printed report very appealing to the eye, but suggested “marketing.”  Year II—Printed report will be “toned down,” still attractive, but will appear more “academic.”  Impact of Non-Financial Evaluation  CalPERS Board very engaged. Influenced strategy moving forward, heightened focus on Central Valley.  Helps to show that ETIs work—CalPERS has established a second California Initiative, ($500 million)

10 “Rules of Thumb” Based on Our Experience  Set Expectations (e.g. include in term sheet)  Keep it Simple (keep the burden manageable; it gets complicated fast)  Be Consistent (ability to compare and show trends year-to-year)  Set Confidentiality Policies (e.g. no release of underlying data)  Be Realistic (e.g. measuring outputs & outcomes vs. measuring impacts)  Evolve (e.g. incorporate key elements into due diligence process)