“I’m speaking to you from my home situated on land that is part of the treaty, lands and territory of the Mississaugas of the Credit”
Upkar: Welcome, everyone, and thank you so much for joining us today.
Although we are dispersed, I would like to begin by acknowledging that I’m speaking to you from my home situated on land that is part of the treaty, lands and territory of the Mississaugas of the Credit. In particular, the territory of the Anishnabeg, Huron Wendat, Haudenosaunee and Ojibwa, Chippewa peoples, the land that is home to the Métis and most recently the territory of the Mississaugas of the Credit First Nation. Toronto is now home to many diverse First Nations, Inuit and native peoples. Toronto is covered by Treaty 13 and the Williams Treaties. I want to acknowledge other team members are calling in from other territories across the country, including Treaty 6 and Treaty 7, and I welcome you to post in the chat the territories that you are joining us from.
There is not a day that goes by where I don’t feel grateful for having the opportunity to live and work on this land that has been inhabited and cared for by Indigenous peoples for thousands of years, and I give my respect to its first inhabitants. This acknowledgement is a small but important reminder of our commitment to the process of reconciliation and building a positive relationship with Indigenous peoples. Today, this acknowledgement is particularly resonant because June 21st is National Indigenous Peoples Day, a day where we recognize and celebrate the history, the heritage, resilience and diversity of First Nations, Inuit and Métis across Canada.
As we know, the Social Finance Fund is focused on improving social equity outcomes, and Indigenous reconciliation represents an important part of that work. We look forward to continuing that work and to work with partners across the Indigenous social finance landscape to advance reconciliation priorities. We recognize that many of our colleagues and partners working at Indigenous-led and -serving organizations are not at work today and unable to join us. We will be recording today’s session to ensure the content is made available to them and to you and today’s session is only the starting point. We are committed to creating many opportunities for consultation and dialogue with those who are here and those in the Indigenous community and others who are unable to attend today.
“The launch of the Social Finance Fund is a big deal for the sector”
So let me set the stage for today’s webinar by recognizing that the launch of the Social Finance Fund is a big deal for the sector. The conversations at the Social Finance Forum last week and the fact that we had almost 200 people registered for today’s call is a reflection of just how significant this moment is. From the time it was first proposed 13 years ago to being launched three weeks ago, it has been a long and difficult accomplishment that many of you and us have had a role in achieving. Let’s pause and celebrate. This is a once in-a-generation opportunity for the sector to come together and truly deliver on the promise of systems change to deliver better outcomes for equity-deserving communities. Systems change is hard. It takes a lot of time and it requires commitment and collaboration with many people. Today you are going to hear from many members of the Realize team committed to that role of systems change and committed to fulfilling our responsibility of being good stewards to facilitate that objective, in partnership with the communities that we serve. At this stage we may not have all the answers, but we do want to share with you the key aspects of the fund, the approach we are taking, informed by our years in the impact sector, the insight from our partner related to private capital, asking questions, seeing gaps, building relationships and advancing solutions.
So this is intended to be conversational, a dialogue, not a formal presentation. We will do a brief overview, but a reserve the bulk of the time for discussion and to make sure we try to address as many questions as possible. I would encourage you to put your questions in the chat box as you think of them and we will leave time at the end to address them.
“As Realize, we have a powerful combination that brings together expertise, access, commitment to impact and different lived experiences”
You know, we realized that if we were serious about making this not a one-time event, but an ongoing channel to bring in capital from investors that hadn’t participated before and to create sustainable impact at scale, we couldn’t do it alone. So we formed Realize to bring two firms together with complementary strengths and the right ingredients. On one side we had Rally Assets, with its deep impact roots, a 12-year history of advising hundreds of clients on impact advisory, diligencing and investing assets for impact and building and strengthening market. And with us we have Relay Ventures with its 25-year-plus history of early-stage VC investing, supporting entrepreneurs, creating new markets through technology and with strong institutional relationships that have allowed them to raise multiple funds and grow their AUM to approximately $900 million. Together, as Realize, we have a powerful combination that brings together expertise, access, commitment to impact and different lived experiences to raise private capital and combine it with the Government’s commitment to catalyze better outcomes.
“Our first message today is to invite you in and to ask for your help and your support and your patience”
Kelly: Thanks Upkar and lovely to see so many friends here today. And so as many of the folks on the call are known to you, some are not and some are new in terms of both our teams. But also what we really want to focus on is that there are many new partnerships that are going to be required to make this successful to achieve the impact outcomes that we’re seeking and to have the right folks along the way, the right voices and the right people. And so we can’t do this without you. So our first message today is to invite you in and to ask for your help and your support and your patience as we do this because we need all of you to be able to achieve these outcomes that we are all working really hard for. And so we will need you and we will be calling upon you for to inform our investment pipeline to inform partnerships and different enablements that we will need to be successful and to sit on our advisory committees and help us govern this in the right way. And to work with us on market-building because we know that the different sections of the sector are at different stages of maturity and our goal is to help raise all boats no matter where you sit. So this is an opportunity to learn more about what our plans are, but also to help be part of the co-creation of it as we move forward.
“Big and bold intentions for this fund”
Marc: Hi, I’m Marc Foran, Chief Investment Officer with Rally Assets. So we have big and bold intentions for this fund. And in terms of what it is we’re looking to accomplish, I think first and foremost is that deep impact and systems change that Upkar mentioned in his introduction. And we’re looking to drive that systems change to help achieve the sustainable development goals and be permanent. In terms of pan-Canadian perspectives, we’re looking to go across the entire country and that means all regions, all communities, regardless of their size, big and small. And very importantly, in terms of what we want to see with this product is, helping to accelerate that social equity and really changing the lives of equity-deserving communities throughout Canada. And to help accomplish this, we’re starting with an ambitious target for a large capital base with a target raise of over $400 million that is consisting of one-third government capital and a very important two-thirds of private capital. So that means we are looking to raise capital to support these. And then finally, alongside the impact, we’re also looking to deliver returns and we’re going to do that by investing in multiple private asset classes with investment target ranges from 3% returns to 25% returns, which is a broad range reflecting those different asset classes for a total return target of 11% to 17% that we’re looking on the investments.
“We have four strategies that we expect to deliver on as part of a balanced overall portfolio”
Lars: My name is Lars Boggild and I’m the incoming portfolio manager for Realize Fund I, working with Marc in order to achieve the goals that Marc described earlier, and really to respond to the breadth of approaches for delivering positive impact and community that we know are out there. We have four strategies that we expect to deliver on as part of a balanced overall portfolio, making investment commitments over the next five to seven years.
- First, we will be investing to support existing fund managers who may have delivered on multiple funds and are really pioneers in this market. But particularly where? Our capital, where this capital can provide additional value. So working with the established fund managers in the market
- Secondly, and very importantly, we will work with first-time and emerging fund managers to bring new and impactful strategies to market where they don’t exist today. And we know and appreciate that many of those opportunities might not yet exist, and so they will emerge over time and over that investment period I described
- In addition, we wish to enable more community-based investment activity, primarily through partnerships locally with grassroot organizations and leaders. And my colleague Laurel will speak later on this presentation about that
- And finally, although more selectively, we do anticipate investing directly in social purpose organizations, which we expect to primarily achieve through core investments alongside fund managers where the state of the market justifies providing this access to additional capital
Well, now we recognize and know that some of these strategies such as working with established managers are more investable today and others will take longer to develop through partnerships over time. But we’re deeply cognizant of how we allocate investments across these four pillars to deliver on the potential of this fund for the full ecosystem. I’ll also note that we’re committing to make an investment policy statement for this work publicly available in the time ahead to allow for greater clarity and transparency around our work, and we look forward to engaging in that dialogue with you.
“We want to know who’s out there, so please complete the product submission form”
Ammara: My name is Ammara and I’m on the private investment research team at Rally. So how are we going to find these great ideas and innovations? We want to know who’s out there, so please complete the product submission form on the Realize Capital website. The product issuers that are already in Rally’s network are in consideration for funding from Realize Fund I, but we want to know, as I mentioned, who else is out there doing great work in this sector. As for social purpose organizations, those investments will be made by a co-investment alongside fund managers. We are actively triaging product submissions and adding them to our growing pipeline list. So what are we looking for? We are seeking new and established fund managers or product issuers with the social equity lens, i.e. getting capital or products and services to those that have historically been excluded based on gender, race, disability and other factors. There’s also a focus on getting funding to those that are not based in the typical urban centres and maybe located in rural, remote and northern areas across the country. Fund managers or product issuers of interest will be engaged in due diligence for investment consideration by Realize Fund I. And in terms of pipeline, we are aiming to start making investments in the fall.
“We believe relationships of trust are the foundation for creating sustainable impactful communities”
Laurel: Thanks, Ammara. Hi, everyone. I am Laurel Sabur and I’m calling in from Treaty 6, Edmonton, Alberta. I am the manager for community investments and our community investment strategy is intended to be built on relationships and partnerships with community-based organizations. We believe relationships of trust are the foundation for creating sustainable impactful communities and as Kelly mentioned earlier, this is something that we cannot do without you. Community-based organizations such as social financial intermediaries, social purpose organizations, we know that they hold up power that we do not have. That’s the power of connection, deep community understanding and community trust. So you are in fact the generators of community impact and we hope through our partnerships that we can help to amplify the impact you’re creating. The strategy, the community investment strategy, will invest primarily through private debts in social, financial intermediaries and social purpose organizations that are creating impact in underserved communities and have some capacity to either underwrite loans for their community or create innovative sustainable investment vehicles. These vehicles should have a capacity to repay the invested capital. So some of these potential community partners could include, but are not limited to, community foundations, community loan funds, small size venture capital funds, credit unions, co-ops, not-for-profits and charities. What’s very essential is the regional reach and the integration of social equity and the capacity of these partners.
Now, we understand from listening over the years and working with some community organizations that the internal capacity for some organizations may be limited. So we are exploring different types of partnership models that can help to leverage on existing strengths, develop new strengths or leverage the strengths of giant community partners to sustain the impact in our community. So we are planning to have multiple rounds of invitations for expression of interest to be a community financial intermediary over the next five to seven years and we intend to have our first formal expression of interest invitation in the fall. And folks are more than welcome to share and discuss your intentions with us prior to submitting an expression of interest. I will be the primary point of contact for community investment partners to share your concepts in a less formal and open dialogue.
“Triple our impact”
Irfhan: My name is Irfhan Rawji and I’m managing partner at Relay Ventures and I’m joining you today from Treaty 7 territory, Calgary. We’re excited about the opportunity to not just invest on behalf of the government, but also to leverage private capital, and we expect to be able to raise an additional $270 million from the private markets, which will allow us to triple our impact. We think this is important not just because of the opportunity to do more, but we also think that over time this will make social finance more sustainable because we’ll introduce traditional investors to a new category that we believe will be of interest.
“We’re really seeing this as the launching point: not only have we just begun, but we have a long road ahead of us”
Ben: So you’ve heard a bit from my colleagues before about the timeline and I’m going to talk to you a little bit more in detail about that because I have had the privilege of working on this file and advancing it to this point for the last year-and-a-half. My name is Ben Rabinovitch, and I work on in business development at Rally.
So for the last two years, we’ve been in a contracting and diligence phase with ESDC, the Government of Canada, and that has been great, but it certainly has limited our ability to do this sort of open public consultation, which we’re very excited to be kicking off. Now what we did want to call out though is that we’ve really only just begun, despite having been working in the background for many years, we’re really seeing this as the launching point: not only have we just begun, but we have a long road ahead of us. As Lars mentioned, when he was speaking, we have an expected five to seven-year period of committing capital and the four strategies that Lars referred to will be, you know committing capital at different timelines based on the maturity of those different pillars within those strategies. So for example, the established fund managers are much more likely to be ready with products that are investable today and so there will be a bias to investments in those early on, and later on we hope to invest in products and intermediates that don’t yet exist. Hence that long cycle. We also wanted to call out specifically that the federal government is committing capital every year for a five-year period in a tranche upfront so that will give us the flexibility to be able to ensure we can commit based on different funds and products classes. And obviously there will be a long monitoring phase that takes place, but also during that period underlying intermediaries and fund managers will be committing capital for any social purpose organizations in the audience. That means that, you know, learning today about the Social Finance Fund might mean it may be several years before you would have to be investment-ready to be able to take part in this initiative. So with that, just want to highlight, we’re excited this is the starting point of this journey, but this long, long period that the program will last for hopefully gives an indication that we’re really beginning and excited to embark on the journey.
“Simply investing with good intentions is not enough”
Ryan: Hi everyone, my name is Ryan Clancy and I’m the Head of Impact Management at Rally Assets. At Rally we know that simply investing with good intentions is not enough, and the goal of impact investing is to make a measurable, positive difference in society while also generating a financial return. We also know that for impact measurement to be useful it needs to be centred around your needs. That’s why we’re partnering with Common Approach to Impact Measurement, CAP Finance and Boann Capital to co-create an impact data standard that will simplify the reporting and sharing of impact data even when you’re using different software. You have different approaches to measuring your impact. We’re fully committed to embarking on this learning journey with you and we’ll provide capacity building opportunities and impact measurement along the way. We value your individual and organizational expertise in this area and we’re dedicated to listening and learning from you throughout the journey.
“We’re counting on our stakeholders”
Kelly: So how else are we going to know that we’re on track? Well, we’re really hoping that you’re going to tell us. As I said at the beginning, we’re counting on this community. We’re counting on our stakeholders far and wide to let us know when we’re doing the right things and when you’d like to see some something else be done. So we’re really counting on that feedback. To that end, you can contact us in a number of different ways. We have mentioned a number of times ways that you can get in touch, but please check out our new website and connect with us on LinkedIn and follow us there for all the latest up-to-date news and email the team at the info box and submit your products to the product submission form. These are the best ways to get into the pipeline and to make sure that we know about what’s going on, we will be setting up office hours beginning in August, that will be targeted to certain different thematic areas and different areas of the business, so ones around product, other ones around community and other pieces and so you’ll continue to hear from us and if you engage with us in these channels.
QUESTION AND ANSWER SECTION
1. Investment Philosophy
Kelly: But now we want to move into some of the questions that you’ve asked in the chat. There’s some great ones in here. So there’s a question here from Omar to get us going that’s asking about investment philosophy around affordable housing, social impact, tech and Sharia-compliant financing. So maybe I’ll ask Marc to answer that in terms of the sectors that are included in the IPS in the places where we expect we’ll be investing.
Marc: Thank you, Omar, for the question. So in terms of what we’re looking to invest in from a sector perspective, I think we mentioned really all sectors. So certainly the ones that you’ve mentioned here would be included with that and also when we talk about a multi-asset class approach, which are things such as real assets, which affordable housing would fall under, technology, equity, even debt offerings…it’s all part of what we’re looking at in our multi-asset-class mix. So first and foremost. Second of all, when we’re looking at certain sectors such as the ones that you’ve mentioned here a key piece of what we’re looking to accomplish is to make sure that there’s additionality in our impact. So you know, if we’re looking at, let’s say, an existing affordable housing fund that’s looking to scale and we can see that our capital is going to help them accomplish that, certainly that becomes something that we want to look at. Also someone that’s, let’s say, trying to create affordable housing in a new area, a new market, a new community, something that hasn’t existed before, we certainly want to help support that journey. At the end of the day, it really comes down to when we look at something like affordable housing, is it making a meaningful impact to that community and those that are involved in that community and are they doing something, let’s say, that’s above and beyond what just simple regulations are requiring from builders. We’re looking for something that’s going to be very additive. So that’s how we would kind of consider that. Social impact technology as well: if we’re looking at a fund that’s delivering social impact, it’s not just the products of the underlying businesses that they’re investing in. So you know, we’ve certainly invested in the past in those that are developing strong technologies, we also want to see that the intention is there. What’s the plan for scaling these products? What’s the plan for making sure that there’s a lot of inclusion? Does the fund manager themselves embrace social equity within their own operation? So there’s a lot of layers to evaluating that from an investment philosophy perspective. But that’s how we tend to focus on those.
Kelly: I’ll throw the next one to Ammara. In terms of investments, limited only to Canada. And this is where we’ve had a bunch before, about how does the geographic limitations work within this fund?
Ammara: Sure. Thank you. So as we know the Social Finance Fund, the purpose of this fund is to catalyze the social finance market in in Canada. So we’ll be investing in social finance intermediaries, so that’s your fund managers. product issuers that have a substantial presence and team in Canada and are seeking to create positive benefits for Canadian communities. As I’ve as I mentioned during my piece, we’re also looking at regional diversification as well. So we know a lot of capital, you know, sometimes it’s concentrated within specific urban centres across the country. So we’ll be working more intentionally with partners to understand how we can get capital to those areas that are in, you know, the prairies, the Atlantic provinces, northern Canada, where we don’t see a lot of capital flow, to be able to increase some of that regional equity as well.
3. Due Diligence
Kelly: And Amara, while we have you here, there’s a question here around intake and due diligence process. Maybe you can just spend a minute on that.
Ammara: Sure. So there was also a question in the chat around the link for the product submission form so I have put that link in there. So that’s, you know, one mechanism that we’re using to be able to learn about who’s out there and doing great work and seeking funding from the Social Finance Fund. You are also welcome to participate in some of the office hours that Kelly mentioned will be starting in August as a way to have a conversation with our team around kind of where you’re at, where your ideas are and how we could help support on that side. And so any of the submissions that we’re receiving on the products website are being added to our growing list of pipeline internally and once we have an indication of interest, then we will be contacting you to conduct due diligence or to dive into your products, your strategies a little bit further, just to understand, you know, the impact that you’re intending to create and a little bit more about the details.
4. Investors’ Role, Relay’s Role
Kelly: OK, so Irfhan, there’s a few questions in here I’m going to send in your direction. So one was about potential role of private sector as investors and the type of investors that we’re talking to. And the second piece was about Relay’s role in in Realize.
Irfhan: Great, thanks, Kelly. Two good questions. So on the first one, we’re pretty open to who would want to join us on this journey. So that could be corporates that are interested in participating in social finance; it can be more traditional investors in private capital, so think of endowments or foundations or family offices. It can be in Canada or international and so we think that the broader the pool that we can bring to this, the more future opportunity. Our test will be, Is there a long term interest in actually learning about the sector and are we bringing additive and new capital to the markets? So that’s really how we’re thinking about it. But we’re open to any investor and we’ve had multiple conversations in the last, I guess now, two-and-a-half weeks since this was announced by the Government, which has been really exciting to see the resonance of what it is we’re all working on together here.
The second question on Relay’s involvement. The obvious answer is obviously with fundraising. I think that came up in the chat. We have long-time relationships with family offices, endowments, corporations that we hope we can bring additive capital to the sector. But there’s two other roles that I think are very important, but maybe that are less obvious. We have invested in B Corps and social organizations over the last number of years as well, and so the firm has knowledge and experience in the space and has passion to do more of it. And so we’re bringing that experience as a direct investor in these social purpose organizations, so it helps us understand which intermediaries, you know, we’ve actually participated with some of the intermediaries that we think could be potentially invested in through this fund. So we have other interests in the sector and desire to do more. And as an asset manager ourselves for a long period of time, we believe that doing this directly makes us able to not just help pick who the best intermediaries could be, but more importantly we hope that we see new managers come out of this. We hope that we see equity-deserving individuals start new funds and we believe we have a role to play in mentoring those new managers given our experience. A
Kelly: And maybe just to clarify too, there, that the Fund itself is a GP-LP structure, it’s available to accredited and institutional investors. And so at the time it won’t be retail available. And so we, we understand and empathize with the constraints that the regulatory system imposes on us and what that means from an access perspective. It’s something that we are about deeply at Rally and Relay, but not something that we can work around at this point with this structure.
5. Intermediaries and SPOs
Kelly: So, then, I might take a few of the next ones. So there are a few pieces here, and Laurel, I’ll ask you to jump in too. But there’s questions here around how many intermediaries will be selected. And so Ryan, that question, our modelling has it at 40 to 50 over the five years. We don’t know exactly where that number is going to land, but that’s sort of the plan. And then from there, you can imagine that that hits, you know, if maybe if there’s 10 SPOs in every one of those intermediaries, then that takes us into 400 to 500 in terms of the number of SPOs that will be affected through this structure. So that’s a tremendous amount of impact through those different partners and that structure, which was asked about in some other questions around SPOs, that is the predominant structure that we will be investing through, so from SFIs to SPOs. So the access point here for SPOs is through those SFIs. There is some direct piece on SPOs and Laurel maybe you can talk a little bit about some of the more direct pieces on SPOs, and there’s a question here about northern regions and northern Indigenous entrepreneurs. So maybe you could tackle those two together.
Laurel: Thanks a lot, Kelly. Yeah, I think Ammara had mentioned earlier, you know, when we think about partners we look at regional reach. So when we think about community-based organizations, one area of criteria that we’re looking at is what is that reach and how far are they reaching in certain parts of the country. You know, we know that from past experience that lots of funding is often in certain centralized areas and so remote areas like the northern area is definitely top of mind. I’m here based in the Prairies. And so we’re really looking to hope to ensure that we’re reaching the remote parts of Western Canada as well as the East. In terms of the direct SPOs investments, it really all depends on the capacity of the SPO itself. If the capacity of the SPO allows them to be able to underwrite certain loans and to also conduct their appropriate due diligence in deploying capital into the community, that’s where we will be looking to some of those direct investments through those SPOs. And again, regional reach, social equity, integration in those SPOs are essential as well.
Kelly: Marc, I’m going to ask you to talk about returns. So there are two questions here around ROI for SPOs and around target returns fixed to a minimum of 3%.
Marc: So first question I see is the target return that you mentioned there of the minimum 3 percent. So the answer is, No, that was just an indicated range. There’s no minimum, there’s no maximum. We won’t say no to something north of 25, won’t say no to something necessarily less than three. And the reason why is, We’re looking at things from a portfolio perspective. So we’re looking to construct a portfolio with multiple parts across multiple asset classes to achieve all the objectives that we outlined before. So there’s a total return component. And there’s an impact component. And so we’re looking to make sure that we have those in what it is that we’re trying to deliver, and that might mean for certain asset classes or certain investments that they fall out of any specific range, and so we’re not set or fixed on that. So that would be first and foremost.
And then let me see… OK, so I think what this is asking for, is for direct investments that we would be looking at, what would the return component be for that? I’m going to kind of defer to the answer I just gave in terms of the range: it’s really going to depend. Now certainly, in direct investments, depends on what the risk is. So there are certainly financial considerations that we’re looking at with respect to that, to make sure that an investment makes sense. But at the same time it’s not something that we would just simply say, you know, well, it has to fit in within this box; it really depends how it fits with the rest of the portfolio. And the reason why I’m kind of giving a vague answer is, I want to encourage everyone to look at the IPS when it gets published by us. Look at what it is that we’re trying to do. Do submissions for your deals, you know, send them in! We want to take a look at them because we’re really taking that portfolio approach. We’re not looking to just simply tick boxes here, but we are looking at some total portfolio goals, so there’ll be room for numerous elements.
7. Impact Management and Measurement
Kelly: We have a few questions here on monitoring and evaluation and IMM so Ryan maybe you can come off. And the first question is from Carlos around what tools we’ll use to monitor and evaluate and report on impact over time.
Ryan: Thanks for the question. You know, to effectively monitor and kind of report on the progress and ensure we’re making, you know, truly impactful investments we’re going to use a combination of leading standard frameworks and impact databases. But we’re also going to be developing new tools along the way, as I mentioned earlier in this presentation. So one of those tools is an impact data standard. The aim of this is really to have a uniform way of representing impact models, but still providing flexibility to Social Finance Fund and Realize Fund participants, providing flexibility so that you can articulate your impact model and your measurement in a kind of a responsive or a flexible way. And so this will, while there will be some flexibility, it will make it easier to kind of aggregate and share across the ecosystem on the impacts that are being created. Alongside that, we do plan on providing some supports to build the impact measurement and management capacity, so that, you know, organizations, especially the emerging ones, have the tools, resources, capabilities to use the impact data standard but also measure and improve their impacts along the way. As it relates to the software service provider, like, we recognize the importance of ensuring a kind of compatibility but still variety of software. The impact data standard is one of the tools that’s going to help with the interoperability of different software providers.
Kelly: Awesome. Thank you, Ryan. And Allison’s added a question here specifically about IRIS and about benchmarking. Really great question, Allison, maybe I can just take that one in terms of, you know, benchmarking in this space is really tricky, as most of the practitioners out there know. So it’s evolving and I think we have a good group of folks that are focused, as Ryan said, on trying to solve these problems in a way that works from the SPO level up and that is operable within the sector. But benchmarking is a question we haven’t solved yet. So thank you for that question.
8. Realize Capital Partners versus Other Wholesalers
Kelly: The next question here is a good one and often asked, so Upkar I’m going to ask you to answer: How will Realize Capital Partners differentiate itself from Boann Social Impact?
Upkar: Thanks Kelly. I should just remind people, and I think we said this last week as well, that it’s really important to note the Government was very intentional wanting to have more than one wholesaler so that the SFIs would have choices as to who they could go to. Each of the three wholesalers have, I’m going to say, different lived experience and that was, again, a desire to make sure we were looking at this from a pan-Canadian standpoint. As you probably know, CAP Finance is focused in Quebec. Boann is focused across Canada as Realize is; we have different structures and approaches and different areas of emphasis in our respective structures. Again, by design, so that different SFIs and SPOs could relate to and approach the two wholesalers. So certainly that’s a possibility, which is one of the other questions and the way we’re trying to think about it from our standpoint, which Marc alluded to earlier and which Irfhan reinforced, we’re trying to think about it as a portfolio approach to bring capital into areas that haven’t received capital historically to attract ongoing private capital so we can actually grow the sector. And Boann has a slightly different structure in terms of how they’re approaching that. Same objective, equity-deserving outcomes is the goal, providing attractive risk-return orientation for investors, but just a different way to actually perceive that. And again, we have different relationships given the backgrounds that we both bring to the table to create the access for SFIs to really make sure they’ve got alternatives to approach one of the wholesalers or fund-to fund-managers for potential funding from one of the two.
Kelly: Thanks Upkar and I’ve just noticed there’s two others, so maybe I can just add on to this and the other questions in the chat. So, there was another one that said the difference between Realize and both wholesalers. So CAP Finance is leading in Quebec and they will be focused both geographically in Quebec, but also on the social economy in Quebec. And so their strategy will be a little different, obviously, geographically scoped than the other two national wholesalers and both Realize and Boann will be investing in Quebec but just in different parts of the economy. I will also say that that Boann is having a webinar next Wednesday to talk about what they are doing, so encourage you to check that out and get more of the answers directly from them in terms of what they’re doing
The other piece here was, is it possible to receive funding from more than one wholesaler? Yes, it is. So there is no limitation in our agreements with the Government or between us in terms of how that will work so you can apply through the different channels to all three wholesalers if that’s what’s appropriate, but there’s no limitations there in terms of in terms of what you can do.
9. Fund Managers
Kelly: I think we had one there for Ammara. Victor’s question was around anchor investors for new funds, and maybe we can tie that in a little bit with Matthias’s question which comes right after it, around pulling capital to historically overlooked fund managers. So maybe you can tackle both those.
Ammara: So the first question is around, you know, will Realize Fund I be an anchor investor in new funds and then a little bit around participation limits. So we are definitely looking at, you know, emerging and first time fund managers, also those individuals could be from, you know, historically excluded communities. The fund’s, you know, aim is to be additional in terms of capital and kind of understanding how we can be catalytic for those first-time or emerging fund managers. So we could be an anchor investor or, you know, come in alongside other investors within the first close for the fund, but do want to see who else, you know, we can encourage to participate within the raise. And then in terms of Matthias’s question around demographic profiles of decision-makers at impact investing intermediaries and how that’s reflected, a lot of how traditional finance looks and how we’re going to be tackling that as we deploy capital. So there is a big social equity piece to the Social Finance Fund, where we want to deploy capital to those that have been historically excluded. And as I mentioned, that could be along the lines of gender, race, disability, other factors, you know, including some of the regional pieces that we see across the country in terms of capital being concentrated in certain areas. And so that’s why you know we’re trying to make a concerted effort to understand who else is out there beyond those folks that we already know about and encourage them to apply, so that way we can have a better sense of, you know, what’s available in the market and be able to understand some of those pieces.
10. Early-Stage Products
Kelly: Thank you, Ammara. Laurel, I’m going to call you back in here. There are two anonymous questions around, What if your product submission is in such an early state that you can’t complete the submission form or don’t understand the terminology? Does that mean you’re not ready? How should I reach out? And then the one that follows it, around Can independent organizations collaborate to form SPIs and different types of organizations. Maybe you can tackle those two for us all
Laurel: Great questions, Kelly. So for the first question in terms of how to reach out, for those for folks who have an existing product or you already have some form of investment vehicle, you can make the submission through the product submission form right now. But as mentioned earlier, we will be having our first expression of interest in the fall that will be publicly announced and we’ll have a couple of office hours before then. The office hours, once they go live, you can book some time with me and we can sit down and just have a chat about what your mission is, what concepts you have in mind. Our hope is really for us to co-create some solutions. And the second question about independent organizations collaborating to form SFIs, and sort of that evolutionary path. So this again is a part of that co-creation of solutions. So the straight answer to that is yes, there is the opportunity for independent organizations to join together. You know, at the end of the day, we really want to ensure that there is some form of resilience that exists in these partners – the partners have the right tools, the capacity to deploy capital into their community and to have some form of sustainable impact for the long term. Again, we can book some office hours to have that conversation and to flesh out what that would look like.
Kelly: Wonderful, thank you. So Lars, I’m going to pull you back in here and bucket two of the other questions. Got a question from Eric on ROI for the fund. Typically, expect from nonprofit organizations to apply, and then the second one there being around making direct investments in SPOs and what percentage of the fund is set aside for direct.
Lars: Thanks Kelly. So I think just regarding the ROI for nonprofit organizations specifically. So we really recognize that the way we’re thinking about the return on investment necessary is really kind of built-up from a bottom-up view of what’s reasonable and feasible and kind of non-extractive. As Marc had mentioned, you know, we really do think about this as a portfolio construction exercise and so opportunities from the nonprofit sector will likely fit into the lower end of that spectrum. As Marc had mentioned, that kind of 3%-plus range and it’s much more likely to kind of fall into some of those later pillars like community lending or perhaps, work with other managers. So I hope that addresses the first question. Second was regarding direct investments in SPOs. Our expectation is that our primary way of building the ecosystem will be building out a kind of robust network over time and ecosystem of other intermediaries that can , as mentioned, continue to attract private capital and be self-sufficient over time. So a kind of minority for sure of the overall portfolio will be dedicated to direct investments in SPOS, and in particular we imagine that first occurring at least through what we call co-investments alongside fund managers. So opportunities that a fund manager is originating and kind of bringing forward but might need additional capital, but that just because of the state of market readiness or the lack of that readiness, our capital can really kind of help complete a deal.
12. Fee Structure
Kelly: Thank you, Lars. Irfhan, there are some questions here around fee structure for investors. And so maybe Irfhan I can call on you to answer those.
Irfhan: Yeah, it’s a great question. So it’s a negotiation between the investors and the fund manager and there’s really typically in a fund-of-funds two types of fees. The first is a management fee, so most asset managers get paid a fee to manage the capital and the negotiation is one where the investor wants to make sure that we have sufficient fees to manage the capital appropriately but not more than they want to pay us. And so we’re in market having that discussion right now. And typically in these types of fund-to-fund structures, the fee structure is about 1% of the assets under management. And as you have more assets, there’s more work to do. And so that hopefully pays for managing the capital. And the second was a performance fee, something called carried interest. And so that’s also in negotiation. And it’s upside should the fund be successful because the investors want to make sure that we’re motivated to get them an appropriate return. The last piece that’s really important, that’s also a negotiation is, investors will expect us as the manager to put up our own personal capital and that’s called the General Partner commitment. And so we all be investors also in the fund because nobody will want to give us money if we don’t also say that we’re willing to eat our own cooking. So that’s all sort of in flux, in play, right now. But those are all great questions. There was another question related to this as well around private investors and, you know, is it de-risked and is it pari passu ? Maybe I could take that right now, Kelly as well? So what we worked on with the government is a structure where the private capital will be lasting and first out. And so that does de-risk the investment for investors that have not traditionally looked at this asset class. And we believe that we need to offer them something different so that they could try making investments in a space that they maybe don’t have experience in and so that structure of last in, first out we think does reduce the risk and will hopefully get more resonance in the private markets and hopefully over time as they get exposure to recognizing that you can do good and still make an appropriate return, that over the future we will build a new ability to attract capital, much more capital into this asset cost.
Kelly: And Irfhan, do you want to add anything to that? There’s a question here about how does Realize Capital Partners make money. So do you want to maybe explicitly add that piece in?
Irfhan: Yeah, like I mentioned earlier, you know, our management fee structure should be sufficient for us to hopefully run the fund appropriately and make sure we’re doing all the right diligence and managing the assets. And we stand to make money if we do well financially. So there’s that benefit and that’s the alignment that the private investors are gonna look for. They don’t want to see us, you know, make money, unless they’re making money.
13. Investment Committee
Kelly: I’m jumping around here a little bit on the list, but Upkar, there is a great question here for you around who’s on the investment committee and are they internal or external to Realize. And maybe I will tie that also to a question around advisory committees and how community support and different voices will find their way there.
Upkar: Sure, Kelly, happy to take those two. It’s a really good question and how I would respond to that is to say we’re trying to navigate through two major objectives. The first objective is to ensure participation and engagement by community in the process by which we choose how investments are made. So that’s a fundamental and very sacrosanct goal. The second objective we’re trying to navigate through is what are the regulatory requirements that we may be subject to and imposed upon as a result of the structure of the fund. And so, we are trying to navigate those two in a way where we can effectively meet both of those objectives, which is to provide meaningful engagement, meaningful participation from a broad array of players, while at the same time making sure we are compliant with what securities requirements are. That process of ensuring how we do that is not complete. But what I can tell you is that the structure we have put on the table does structure multiple committees with different representation being very thoughtful and mindful about both the 50-30 requirement and getting a diverse set of views from people who have a vested interest in ensuring that we do things in a way that actually achieves our objectives from a social equity standpoint. So still a work in process, but we are structuring various government structures to allow us to do that to try to meet those two objectives.
Kelly: And there’s a clarification, sort of further down below, around can an individual put themselves forward as an advisor and apply for funding in the product submission. So really great question. And I think this is one that has challenged our space for a long time because we have sort of concentrated expertise and so we will need to, as Upkar has said, think about conflicts of interest and be very clear that we are meeting at the highest standards where they are concerned. But at this point, we know that all of this is evolving. So I think applying through both of those channels and flagging your conflicts of interest is probably the best route. And then we’re happy to talk to you about those pieces.
Kelly: OK, let’s see what else we have in here. We have more performance-based fee questions. Maybe Upkar, back to you. Key persons for Realize from a legal perspective. And, performance fee based on both social and financial returns. Can I bucket both of those for?
Upkar: So the Realize joint venture will have key people from both sides and then ultimately the intention of Realize will be that we will essentially bring an in-house team dedicated to the fund within Realize that will have management operating authority and responsibility. And so right now Relay and Rally are stepping into the breach to try to make sure we move as quickly as possible to operationalize the fund in a meaningful way. What you are hearing today are out attempts to do that. While we effectively go out and recruit and hire and bring on to the team the people that will ultimately be responsible, the people around this conversation are going to be the key people for Realize on a go forward basis. And so, the people you are seeing now and have seen in the past will continue to play a meaningful and pivotal role as we move forward. And so I think I’m just gonna, you know, refer back to what Irfhan talked about, which is the fee structure, which is the management fee and the performance fee. And I think what I would just reinforce what Irfhan said earlier, is that the performance fee effectively only kicks in, is only available, if there is a return to investors and a return to Government. And so our motivations are basically driven by making sure we return capital and provide returns to both of those stakeholders and then our other primary objective is really focus on the social equity outcomes we’re trying to achieve. And in that regard, we have an ongoing program of reporting back to the Government with respect to how we’re achieving on that objective. In terms of the specific structure of the performance fee, it’s still something that is yet to be worked out, so I can’t give you the specifics because it hasn’t been locked in. And as Irfhan said, we are going through the process now of establishing the process for fundraising with third-party investors and that will be part of the negotiation and the discussion about how that performance fee is oriented and negotiated.
Irfhan: Can I just add two last things on that, I mean, this is always negotiated. It typically is the larger investors are the ones that will negotiate it. So if somebody comes and makes a $20 million commitment, they’re more likely to push us on these things and make sure that we are appropriately successful and it’s important for them as well that the performance fee that we receive is very back-end loaded. Like, it comes 12, 13 or 14 years from now because they want to make sure that that it truly is successful and that we’re sticking around for the long haul
There was a question that I wanted to take Kelly just, I want to make sure my comment was clear. It was around, Is the management fee for funds that are successful set at 1%, which is an anonymous question. It is not set. That’s a typical fund fee for a fund-of-funds, so that would be the Realize expected fee in that zone, but for funds that we’re investing in, so the SFIs, the social finance intermediaries, the fee structure is typically higher. Now that is again a negotiation, but you typically see a fee structure for an SFI be more like 2% because they’re doing a lot of work to find the direct investments.
Kelly: Thank you, Irfhan. OK, so I will clarify two last pieces and wrap it up. So one was, Is there grants? And so as I think many of the wholesalers have been talking about over the last few weeks, this is not a granting program. It’s an investment program. There is some market-building capital that is built in to help support the process, but there won’t be grants that will be issued from this pool of capital. Investments will be made starting late summer, early fall and so that that intake process that Ammara described as ongoing and we’re excited to hear from many of you.
I think we did an OK job at the questions, team. We did 46 and we had 11 unanswered. So, rest assured to those of you who didn’t get your questions answered, we’ve captured all of them, and we’ll endeavour to include those in our FAQs as we continue to update those both on the central wholesaler site and social finance dot fund, as well as on Realize Capital Partners site and so keep checking back in there for updates to those questions.
And please use the channels that we’ve provided to you to engage with us. We’re keen to hear from you and answer the rest of your questions. So thank you so much for joining us today and for being part of this exciting launch in this journey and we look forward to talking to you more soon.
We held a webinar in June 2023 to discuss Realize Fund I.
This webinar was just the start of our outreach regarding this fund. Follow us on LinkedIn to keep the conversation going.
> Presentation deck (PDF)
- SFIs: social finance intermediaries
- SPOs: social purpose organizations
- IMM: impact measurement and management
- ROI: return on investments