THE SYNEIDESIS GROUP
Spring 2014
Impact Investing’s 40 Year Evolution
1st
Wave
SRI
1970’s – 1990’s: SRI…Religion as
innovator, Vietnam, apartheid,
environment
Wave
Blended Return
The 2000’s
Today
• “IMPACT AND/OR
RETURNS”
•
“RETURNS FROM
IMPACT”
•
• SRI funds & shareholder activism
• Awareness, debate, and
education
• Microfinance
• Network: GiiN
Recognize the breadth of
“impactful” strategies
and asset classes
• CRA
• Metrics: IRIS/GiiRs
•
Scale and big levers
• Community banking & CDFIs
• JPM report
•
• Clean Air Act
• Kyoto carbon credits
Transition from “ideal” to
reality
•
• Clean Water Act
• MFI Nobel Prize & IPOs
…
• SOX & NOX cap & trade
• Social enterprise & VC
model dominate
•
“NO”
•
Significant innovation
• Labeled with underperformance
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3rd Wave
Impact Drives
Returns
2nd
• More than Mission
4 Billion MORE People Eating Meat and Driving Cars
• Global macro trends:

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
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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
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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.
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Resources
CALPERS ESG research database:
http://www.calpers.ca.gov/index.jsp?bc=/about/pr
ess/pr-2013/june/finance-symposium.xml
CALPERS Protocol (September 2013):
http://www.calpers.ca.gov/eipdocs/about/press/news/invest-corp/boardoffsite.pdf
Equilibrium Forum – Alan Emkin (Pension Consulting
Alliance): http://vimeo.com/69999326
WEF Report:
http://www.weforum.org/reports/marginsmainstream-assessment-impact-investment-sectorand-opportunities-engage-mainstream-i
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”.
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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
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Asset Thrives
• Higher Current Yield
• Long Term Value
Equilibrium Capital
Building the Leaders in Sustainability Driven Real Assets
• Founded in 2007
 2013: $500M+
 2014: $1.2 - 1.4B
• Real Assets:

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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
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Come for the returns,
Stay for the impact
Real Assets Sectors and Alpha Generation
Equilibrium Sustainable Methodologies
Renewable
Energy
Distributed, decentralized, energy generation and
efficiency
Sustainable
Agriculture
Reducing chemical inputs, leveraging mechanization,
enhancing the soil
Green
Real Estate
Mixed use, efficient designs, integrated with the
community
Water
Management
Reclaimed, recycled and efficient use of wastewater
streams
Land
Stewardship
Optimizing land resource utilization
Directly Correlating
Sustainable Methodologies and Returns
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Source of Returns
•
•
•
•
•
Multiple revenue
streams
Reduced input costs
Waste/inefficiency
into value
Higher value outputs
Long term enhanced
asset productivity
Equilibrium
Platform
Research Drives Our Investment Process
Proprietary
Research
Development
Strategy
Fund Team
Formation
Product
Development
Fund Launch and
Investing
36 to 48 months Process
Cost: $2M- $4M
• Proprietary Strategies
•Superior
returns
•Real assets
•Long term assets
•Scale
•Innovative structures
• Building Teams
• Addressing Investors’ Needs
Measurement and
Reporting
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Current Product Highlights
ACM Permanent Crop, LLC
Australian Pastoral Fund
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.
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-year fund, $150-250mm targeted size
•
10+years fund, - $500mm
Wastewater Opportunity Fund, LLC
Gerding Edlen Green Cities II, LP
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.
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
•
`
7-year fund, $150-250mm targeted size
•
7year fund, $250-300mm 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.
•
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12+ years vehicle, 2014 pooling period, $250
million maximum pool size
Equilibrium Capital Group
Building the Global Leader in Sustainability Driven Real Assets
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ACM Permanent Crops, LLC
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).
Fund Features


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%
Carried interest: 15% with catch-up

Preferred return: 8%

and farm production, quality control, process control
enhancement
• Drivers of returns: organic products offer premium pricing, midstream assets
captures margins, sustainable farming practices accumulates value of the croplands
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Management fee: 1.5%
 Bonus in years where current income
exceeds preferred return; capped at 0.5%
addition to management fee.

• Midstream assets: captures greater share of economics between retail market(s)
• Sustainable farming practices: water management, topsoil protection /
Fund size: $150-$250 million, minimum
investment $1.5 million

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)
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.
Fund Features

Fund size: A$250-A$500

Management fee: 0.75%

Market Opportunity
•
Global 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.
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Property acquisition management fee: onetime 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
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.
Fund Features

Fund II size: $250 - $300 million

Management fee: 1.50%


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
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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
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
Fund Features
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
Carried interest: 20%, with catch-up

Preferred return: 8%

• 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.
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Management fee: 2% per annum,
attenuating 10% per year after year five

• 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.
Fund size: $150–$250 million (minimum
investment of $2.5 million)

Returns: Targeted 16%-18% net IRRs
and 8% current income
Term: 7 years with up to 3 one-year
extensions (with LP consent)
Multi-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 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.
Targeted
Sectors
Agriculture
Energy
Real Estate
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.
Water
Land
Equal allocation into funds actively in market and accepting investors’ capital at each vehicle pool closing, during open period
Fund 1: ACM Permanent Crops Fund I
Vertically integrated, sustainable permanent crops
Fund 4: Australian Pastoral Fund
Diversified portfolio of grass-fed livestock and land
Fund 2: Green Cities Fund II
Value-added and opportunistic green real estate
Future Strategies
Fund 3: Wastewater Opportunity Fund
2-4 additional strategies under development
New opportunities in wastewater efficiency
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Disclaimer 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.