By Lauryn Agnew and Stephen Malta

How to use the Bay Area Impact portfolios as building blocks for investing for sustainability and resilience in our own backyard.

The six Bay Area Impact Investing portfolios that make up our regional impact investing solution are asset class specific strategies: public equity, fixed income, real estate, infrastructure, private equity, and community investing/savings. Each strategy is designed to combine the best practices in institutional investment management and fiduciary duty, benchmark-like rates of return in each asset class, and an impact on the local economy.

Each individual portfolio offers its own specific targeted local impact with unique risk and return profiles. These portfolios can serve as building blocks each investor can use to balance their impact goals with their own personal, family or institutional target investment goals and mission. With these standardized asset classes, each investor can customize their individual investment preferences and target their unique risk, return, and impact goals.

Let’s describe the characteristics of each of the portfolios:

Public Equities: This model stock portfolio is optimized to the Russell 3000 and is over-weighted in Bay Area headquartered companies, which gives its investors an oversized voice for indirect impact through corporate engagement and proxy voting. The strategy includes strong attention to ESG criteria, long term wealth creation for shareholders, and a positive impact on the Bay Area by working with local companies who employ our residents.

• Publicly traded stocks are very liquid, can be very volatile, but over the long term are an important part of an overall portfolio.
• This strategy could be investable for retirement accounts in a mutual fund format.

Publicly Traded Fixed Income (Bond fund): This Bay Area bond fund will hold a broad selection of investable bonds generally offered by Bay Area issuers: municipalities, local governments and agencies, regional corporate bonds as well as strategies for direct lending to small and medium sized businesses and non-profits, and project bonds for the area.

• Bonds are generally very liquid and can be a solid foundation to a portfolio while providing current income to the investor. A variety of fixed income instruments, tied with professional strategies, will seek strong total returns in line with its benchmark, the Barclays Aggregate.
• This strategy could be investable for retirement accounts in a mutual fund format.

The Real Estate portfolio will include both liquid REITs and investable projects in industrial, commercial and residential real estate. It will include sustainability, resilience and prosperity goals and will adopt fiduciary standards to invest in the complex environment that is the San Francisco Bay Area real estate market. Impact here can be counted in terms of properties built/bought, families housed, jobs created, GHG reduced, etc.

• Real estate is less liquid than stocks and bonds, generally offers long term protection against inflation, and is a good diversifier in portfolios that can afford less liquidity (a longer holding period).

Infrastructure investments may be in the form of infrastructure bonds tied to specific projects, or public private partnerships for longer term regional transit and housing solutions. Clean and green energy efficiency, internet access, congestion on the highways, carbon footprints are some of the infrastructure investment needs we see in the Bay Area. With our approach to pooling long term assets, we can find the right partners and shovel-ready opportunities, through networking and centralized collaboration.

• Infrastructure investments generally are highly illiquid and can result in a high local impact on job creation and funding community and economic development plans for the long term sustainability and resilience of the region.
• Public Private Partnerships can bring the discipline of private markets to the public resources for more efficient project management.
• Infrastructure projects can provide cash flow and an inflation hedge and move the regional economy forward in big ways.

Private equity portfolios provide exposure to the newest entrepreneurial talent found in hubs, incubators and our leading companies and business schools. This can be fueled with local talent and resources continuing the Bay Area’s leadership in developing creative solutions through innovation and technology. Private equity is a long term investment usually inaccessible to many investors. It can provide early funding for new disruptive ideas, mentorships and build a job creating machine that focuses on the resources and needs of the Bay Area. Success stories already abound about impact in our Low-Moderate Income neighborhood startups that have realized significant local impact: Pandora, Tesla, Revolution Foods, to name a few.

• The Private Equity fund is a long term investment with the potential for high returns over 10-15 years.
• Private equity takes patience and expertise but can offer direct impact by funding unique solutions visible right here.

Institutional Investors build an overall portfolio by combining asset classes for smart diversification. A well-diversified portfolio might look like this below:

Typical portfolios will mix these asset classes for an overall average rate of return, relying on the ups and downs of each asset class in their market cycle to moderate the overall risk (volatility) in the portfolio, resulting in a long term average expectation for a portfolio like this to return about 7.0 – 7.5% annually over time. Investing a small portion of one’s assets, perhaps just 1%, in place-based portfolios such as shown in the Example Allocation (above table), or each investor can choose the asset classes that suit their impact goals best.

If you are a moderate-risk/moderate-return sort of investor, as are many long term asset pools that expect to survive many generations, then this structure could be a guideline for your place-based impact investing allocation. Split the 1% place-based impact investing allocation into its component asset classes and look forward to it earning its assigned market benchmark return AND providing a positive impact on the Bay Area overall.

If you are a more aggressive investor you can shift your percentage allocation in favor of the higher earning asset classes like Public and Private Equities, targeting 60-70% there and less to the other asset class portfolios.

If you are a more conservative investor and want more comfort in a less volatile portfolio, you can choose to invest more in the Community Investment/Savings, Bond, and Infrastructure funds.

Likewise, already geographically aligned, local mission oriented investors can tilt their place-based impact investments to focus more on a particular alignment with mission than on the risk and return metrics. For example, a fund that seeks to impact jobs and job creation can use the public equity and private equity portfolios to impact the job goals. Even real estate can often account for job creation and job development. Housing advocates can align their investments through the Real Estate, Bond, and Infrastructure portfolios.

Sustainability will be a long term investment goal for the BAIII portfolios. We want our private capital to be participating on an intentional basis in the investable opportunities in the Bay Area. We want to create more impactful opportunities and an investment platform for channeling local resources and capital to local investments and community resilience for our region.