The California Model, financing the missing middle, nonprofit working-capital loans, CalPERS: SDGs…



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#Featured: Returns on Investment Podcast

The California Model: Inclusivity and shared prosperity, or exclusivity and inequality? Take a look toward the future, and often California is already there. But when it comes to innovation hubs as drivers of job creation and shared wealth, is California the model America’s second- and third-tier cities really want to follow?

“You’re finding germs of California happening in lots of places,” says ImpactAlpha’s David Bank, a California resident, in the latest Returns on Investment podcast. He points to the development of entrepreneurial ecosystems and pockets of startup culture around the country that now offer a legitimate career path for many.

But Imogen Rose-Smith, an investment fellow at the University of California, isn’t so sure the California Model is a valuable export. For the model’s problems, look no further than…California, with its massive housing crisis and growing income inequality. “I’m a big believer in this focus on second and third-tier cities and what is it we need to spur innovation and jobs creation,” she says. “But this focus on innovation hubs and tech startups is screaming bubble economy.”

“The problem is created in California,” says Bank, “but the solution is also going to be created in California.” Bank says Silicon Valley is now pioneering the next stage. It’s “not just unicorn, go to the moon, apps, startup dot-com again. It’s real businesses, with real revenues, serving real people with real needs.”

Read on and listen in to, “The California Model: Inclusivity and shared prosperity or exclusivity and inequality?” And then subscribe to all of ImpactAlpha’s Returns on Investment podcasts.

The California Model: Inclusivity and shared prosperity or exclusivity and inequality? (podcast)

#Dealflow: Follow the Money

JCM Power secures $25 million from FMO for emerging-market renewables. The Toronto-based developer builds utility-scale solar installations and transmission lines in energy-underserved areas around the world. The company recently expanded into Asia and in the wind sector with plans to build a 50-megawatt wind farm in Pakistan. The funding from FMO, the Dutch development bank, is an equity investment in JCM and will be used for project construction and acquisitions.

Open Road Alliance expands working-capital loan fund for social-sector organizations. The philanthropy’s fund is designed to fill a very specific need faced by social organizations: one-time cash crunches. “It’s an impact arbitrage opportunity,” Caroline Bressan, Open Road’s director of social investments, Bressan told ImpactAlpha in an earlier interview. Open Road, founded and backed by philanthropist Laurie Michaels, plans to disburse at least $50 million in loans to nonprofits and social enterprises over the next five years; last year, it completed a $5 million pilot of the fund. One pilot loan allowed Honey Care in Kenya to weather the bankruptcy of its largest customer. Income from loan repayments will be recycled for future lending.

Bridges takes majority stake in healthy school-meal provider Innovate Services. Innovate caters healthy meals to 90,000 primary and secondary school students in 120 schools across England. Bridges Fund Management, a London-based impact investor, says the school-meals sector can improve education and health outcomes; studies tie nutritious meals to positive behavior and school performance. “Promoting healthy eating in schools helps to combat obesity and fosters better long-term eating habits,” Bridges says in a statement. With the £8.5 million ($11.9 million) investment, Bridges gains majority control of the company and says it will help build Innovate’s management team and scale the business. The deal is the second investment from Bridges UK Sustainable Growth group this year.

See all of ImpactAlpha’s recent #dealflow. Send deal tips and news to thebrief@impactalpha.com.

#Signals: Ahead of the Curve

Capria fund managers expect to raise $200 million to bridge “missing middle” gap in Global South. Capital for seed-stage ventures and other small and growing businesses in emerging markets — the dreaded ‘missing middle’ — has been hard to come by. To tackle that challenge, Capria Ventures began in 2015 training and investing in a network of first-time fund managers in Latin America, Africa and Asia. Now, Capria says its network of 11 fund managers is on track to raise nearly $200 million in 2018 (The network currently manages $105 million). Last year, funds in the Capria network completed seven investments, including Pomona Impact’s investment in Organic Gum in Guatemala and Zimbabwe-based Vakayi Capital’s investment in Homelux, an affordable housing provider. Capria also says it expects to close the first tranche of a new $100 million fund-of-funds in the first half of 2018. “In addition to investing in funds, we also look to provide capital to the management company as needed, and we will warehouse deals on behalf of managers we select prior to the formal formation of their fund,” said a Capria spokeswoman. Capria is currently recruiting new fund managers in Latin America, Africa and Asia through its sixth investment cycle.

#2030 Finance: Long-Termism

CalPERS’ chief investment officer: the SDGs are a “gift to investors.” CalPERS, the $357 billion pension fund for California public employees, gets credit for engaging companies over the risks posed by firms’ environmental, social and governance practices. (In October, the New America think tank named the fund to its list of 25 Most Responsible Asset Allocators.) With the onset of action on the 17 UN Sustainable Development Goals for poverty reduction, social well-being and climate action, the California pension fund is looking at risks with a broader lens.

Calling the SDGs a “gift to investors,” Ted Eliopoulos, CalPERS’ head of investments, told a January board retreat that his staff is exploring how its existing sustainable-investment plans align with the Global Goals, reports top1000funds.com. “The concept of risk may well have to be expanded even further to incorporate the lack of progress toward some of the other aspirations of the sustainable development agenda — such as reducing inequities or [achieving] gender empowerment and equity — which themselves have an impact on macroeconomic factors,” Eliopoulos said.

The SDGs can also help drive returns, says Anne Simpson, CalPERS’ investment director for sustainability. For instance, just four sectors central to the goals — energy, cities, food and agriculture and health and well-being — represent an estimated $12 trillion opportunity each year. “The sustainable development goals are intended to build prosperity,” Simpson told top1000funds.com. “That’s really why we’re interested.”

Thank you for reading. Onward! Please send news and comments toTheBrief@impactalpha.com

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