THE CRA QUALIFIED INVESTMENT FUND

Transcription

1 THE CRA QUALIFIED INVESTMENT FUND Aeris Impact Management Rating Report Review Date September 30, 2016 Disclaimer: These ratings and this report are not a recommendation to invest in a fund, and do not comment on the suitability of a fund investment for a particular investor. Each investor must evaluate whether a contemplated fund investment meets the investor s specific goals and risk tolerance. The report relies on written and oral information provided by the fund. Under no circumstances will Aeris, its staff, or the Aeris analysts have any liability to any person or entity for any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstances related to this report or rating. Aeris, its staff, and the Aeris analysts are not liable for any decisions made by any recipient of these ratings or this report. AERISINSIGHT.COM

2 RATING DESCRIPTIONS Impact Rating The Fund has exceptional alignment of its impact mission, strategies, activities, and data that guide its investment programs and planning. It fully and effectively uses its resources, both directly and indirectly, in pursuit of its impact mission. It has processes and systems that accurately track comprehensive data on an ongoing basis, and it can provide data showing positive changes in achieving its impact goals. Board and management consistently use the data to adjust strategies and activities to improve its effectiveness. RATING METHODOLOGY Aeris Impact Ratings assess the pursuit and achievement of impact goals as evidenced by strategies, use of investment capital, and how impact is measured and informs the refinement of those strategies. The Aeris methodology is applied based on a fund s impact investment model and objectives. This rating and analysis are for the CRA Qualified Investment Fund, which is rated as a fund that targets investments to achieve positive and proven social or environmental outcomes. See Page 2 and report attachments for a more detailed description of the Aeris Impact Assessment Framework and Ratings methodology and definitions.

3 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND Aeris Impact Rating Report Release Date Impact Rating 03/2017 Fund name: The Community Reinvestment Act Qualified Investment Fund Impact rating 1 : Parent or affiliated organizations: Community Capital Trust CCM Alternative Income Fund Fund manager: Community Capital Management, Inc. Fund manager contact name: Alyssa Greenspan, CFA Phone number: agreenspan@ccminvests.com Fund manager website: Fund website: Analyst: Mary White Vasys 1 See Aeris Impact Ratings and Descriptions Attachment.

4 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND IMPACT ASSESSMENT FRAMEWORK Aeris rates funds based on a framework guided by a fund s investment model, impact objectives, and evidence of impact. We differentiate between funds that promote socially and environmentally responsible behavior by avoiding certain types of investments; those that target investments to achieve positive and proven outcomes; and those that advance the health of systems and markets for target beneficiaries. The Aeris rating methodology distinguishes between different impact investment objectives then assesses the evidence used by an investment manager to demonstrate the success of its impact strategies. Impact Investment Categories* PROMOTE TARGET ADVANCE Impact investment strategy Encourage socially and environmentally responsible behavior through exclusion of investments that conflict with investors defined impact values. Achieve positive and proven outcomes through investments in companies or projects that align with defined social, environmental, or good governance objectives. Advance the social, environmental, or economic health of target communities, populations, or markets through sustained and iterative investment. Fund examples Funds that include both financial objectives and articulated screens that avoid investment in tobacco, weapons, fossil fuels, and other industries that may conflict with investors impact values. Funds that are organized to provide market-rate financial returns and target outcomes that positively benefit the environment or specific communities, populations, or markets that address investor-defined impact priorities. Funds that are primarily organized for impact purposes and secondarily for financial return; returns may be market-rate or concessionary. * Adapted from BlackRock and ongoing research by Tideline and CASE i3 at Duke University. This rating and analysis are for the CRA Qualified Investment Fund, which is rated as a fund that targets investments to achieve positive and proven social or environmental outcomes. P. 1 CONFIDENTIAL NOT FOR DISTRIBUTION

5 THE CRA QUALIFIED INVESTMENT FUND CONTENTS Impact Assessment Framework... 1 Introduction... 4 Impact Analysis... 8 Alignment of Strategies and Operations... 8 Management Quality Effective Use of Financing Resources Tracks Impact Data That Indicate Effectiveness Response to Rating Analysis Attachment CONFIDENTIAL NOT FOR DISTRIBUTION CONTENTS P. 2

6 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND This page intentionally left blank. P. 3 CONFIDENTIAL NOT FOR DISTRIBUTION

7 THE CRA QUALIFIED INVESTMENT FUND INTRODUCTION Please note: Impact data is reported on a calendar yearend ( CYE ) basis. Financial data is reported on a fiscal yearend ( FYE ) basis, which is May 31. IMPACT OVERVIEW STATES SERVED: All 50 United States INVESTMENT TYPES: Fixed-income, market-rate bonds IMPACT FOCUS: Community Reinvestment Act-qualified investments. Agriculture, affordable healthcare/rehabilitation, affordable housing, disaster recovery, education/childcare, enterprise development/jobs, environmental sustainability, gender lens, healthy communities, HUD-designated 1, human capital plan, neighborhood revitalization/redevelopment, rural community development, seniors/disabled. Geographic targeting of investments. INVESTMENT AND IMPACT OBJECTIVES The Community Reinvestment Act Qualified Investment Fund s ( the CRA Fund or the Fund ) mission is to provide (1) a high level of current income consistent with the preservation of capital and 2) investments that will be deemed to be qualified under the Community Reinvestment Act of 1977, as amended (the CRA ). According to the Federal Deposit Insurance Corporation ( FDIC ), the Community Reinvestment Act is a law intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income ( LMI) neighborhoods, consistent with safe and sound banking operations. LEGAL STRUCTURE The CRA Fund is one of two separate series in The Community Capital Trust (the Trust ). The Trust was organized as a Delaware business trust on January 15, The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The second series in the Trust is the CCM Alternative Income Fund (Ticker: CCMNX). This Aeris Rating applies to the CRA Fund only, although elements of the analysis will consider the governance relationships of the Trust and its advisor, Community Capital Management ( CCM or Advisor ). The CRA Fund is a non-diversified fund, which invests primarily in fixed-income bonds. It offers three classes of shares, which are substantially the same but have different expense ratios: CRA Shares (Ticker: CRAIX) for banks Institutional Shares (Ticker: CRANX) for institutional investors and advisors Retail Shares (Ticker: CRATX) for individual investors and advisors 1 Geographic areas designated by the US Department of Housing and Urban Development ( HUD ) as Historically Underutilized Business Zone ( HUBZone ), Distressed/Underserved, Empowerment Zone, Enterprise Community, Renewal Community, or Neighborhood Networks. CONFIDENTIAL NOT FOR DISTRIBUTION INTRODUCTION P. 4

8 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND INVESTMENT HOLDINGS The CRA Fund s main investment holdings include: US government agency mortgage-backed securities for multi-family and single-family affordable housing State and local government municipal securities that support economic development US government agency asset-backed securities (e.g. US Small Business Administration [SBA] loan pools) that support small businesses and job creation Corporate green bonds GEOGRAPHIC AREAS SERVED The CRA Fund seeks investments in all 50 United States. Investments can target geographies that are nationwide, state or county and/or serve urban and rural markets. The headquarters of the Trust s advisor, CCM, is in Weston, Florida. CCM has satellite offices in Charlotte, NC and Boston, MA. HISTORY CRA QUALIFIED INVESTMENT FUND CCM established the CRA Fund in 1999 to help banks receive positive consideration on the investment test portion of their CRA exams. 2 Since then, the CRA Fund has grown to include investments from more than 350 banks/thrifts and other types of investors interested in its investment strategy of purchasing debt securities that offer a market rate of return and positively impact communities throughout the United States. Initially the CRA Fund only offered the CRA Shares. In 2007, the Fund began offering Institutional Shares and Retail Shares. HISTORY COMMUNITY CAPITAL MANAGEMENT CCM was established in 1998 and specializes in managing fixed-income impact investing and fossil fuel free portfolios. It incorporates the environmental and social aspects of environmental, social, and governance ( ESG ) investing into its investment policy by proactively screening market-rate bonds that positively contribute to economic and sustainable impact. Clients include institutional and individual investors looking to incorporate an impact investing strategy within their bond portfolio and banks for CRA investments. It established the CRA Fund in In 2001, CCM expanded to include separate account management for clients such as foundations, religious organizations, pension funds, nonprofits and their advisors. In 2013, CCM launched operations of the CCM Alternative Income Fund, a multi-alternative fund that is income- and absolute-return oriented while integrating ESG criteria. CCM s total assets under management at September 30, 2016, was $2.3 billion, of which approximately $1.95 billion was in the CRA Fund, $32 million in the CCM Alternative Income Fund, and the balance ($366 million) in separately managed accounts. Since inception, CCM has invested over $7.4 billion in impact initiatives nationwide on behalf of its clients, generating the following results: 2 The CRA investment test considers the dollar amount of qualified community development investments, the innovativeness and complexity of qualified Investments, and the responsiveness of qualified investments to credit and community development needs. The CRA regulations define qualified community development investments as those that have one of the following as its primary purpose: affordable housing; community services targeted to low- and moderate-income individuals; activities that promote economic development; or activities that revitalize or stabilize low- or moderate-income ( LMI ) geographies. (Source: FDIC - P. 5 CONFIDENTIAL NOT FOR DISTRIBUTION

9 THE CRA QUALIFIED INVESTMENT FUND 350,000 affordable rental housing units financed 15,500 home mortgages for low- and moderate-income borrowers financed $320 million in enterprise development and job creation $376 million in economic development (i.e., environmental sustainability, neighborhood revitalization, healthy communities) $838 million in statewide homeownership and down payment assistance $33 million in affordable healthcare and rehabilitation facilities CONFIDENTIAL NOT FOR DISTRIBUTION INTRODUCTION P. 6

10 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND CRA Qualified Investment Fund AUDIT AUDIT AUDIT AUDIT AUDIT Summary Data - Fiscal Year End (a) 5/31/2012 5/31/2013 5/31/2014 5/31/2015 5/31/2016 Capital Total Assets 1,393,241,597 1,565,738,550 1,628,179,925 1,697,271,862 1,944,958,853 Investment Securities Purchased, Pending Settlement 48,345,587 43,025,218 57,742,469 23,157,386 41,269,783 Net Assets - CRA Shares 1,148,679,600 1,292,722,192 1,380,547,840 1,464,074,785 1,518,856,584 Net Assets - Institutional Shares 159,158, ,257, ,654, ,736, ,756,724 Net Assets - Retail Shares 34,127,663 40,623,776 35,102,547 33,755,356 86,140,710 Total Net Assets 1,341,966,049 1,519,603,475 1,567,304,503 1,670,566,168 1,899,754,018 Investment Returns (b) CRA Shares 6.51% -0.09% 0.37% 3.34% 2.22% Institutional Shares 6.99% 0.45% 0.83% 3.71% 2.69% Retail Shares 6.62% 0.01% 0.57% 3.35% 2.34% Barclays U.S. Aggregate Bond Index 7.12% 0.91% 2.71% 3.03% 2.99% Earnings Investment Income 41,744,720 42,850,990 43,912,245 44,916,810 49,159,688 Total Expenses 10,410,033 12,807,180 13,693,965 13,984,533 15,030,569 Advisory Fees 3,513,002 4,427,199 4,636,991 4,790,587 5,306,259 Distribution & Administrative Fees and Expenses 6,897,031 8,379,981 9,056,974 9,193,946 9,724,310 Net Investment Income from Operations 31,334,687 30,043,810 30,218,280 30,932,277 34,129,119 Net realized and Unrealized Gains on Investments 42,451,963 (30,721,870) (23,660,981) 21,738,371 6,821,158 Change in Net Assets 73,786,650 (678,060) 6,557,299 52,670,648 40,950,277 Financing Activity Investment Securities Sold, Pending Settlement - - 9,809, Investments, at Fair Value 1,387,344,213 1,559,603,742 1,612,146,369 1,689,883,819 1,937,299,269 Total Investments 1,387,344,213 1,559,603,742 1,621,955,994 1,689,883,819 1,937,299,269 Deployment 99.8% 99.8% 99.8% 99.8% 99.8% Summary Data - Calendar Year End (c) 12/31/ /31/ /31/ /31/ /31/2015 9/30/2016 Management Total FTE Staff Total FTE Investment Staff Impact Data # of single-family mortgage-backed securities purchased $ of single-family mortgage-backed securities purchased (000s) 213,247, ,508, ,081, ,641, ,137, ,137,927 # of multi-family mortgage-backed securities purchased $ of multi-family mortgage-backed securities purchased (000s) 242,487, ,485, ,622, ,784, ,252, ,252,343 # of municipal bonds purchased $ of municipal bonds purchased (000s) 52,980,000 91,620, ,510,000 73,230,830 34,340,000 34,340,000 # of asset-backed securities purchased $ of asset-backed securities purchased (000s) 15,603,580 9,833,633 58,022,342 25,750,290 30,930,580 30,930,580 # of corporate bonds purchased $ of corporate bonds purchased (000s) 5,775, ,000,000 3,000,000 # of other investments purchased $ of other investments purchased (000s) 55,790,000 68,588,000 73,810,000 35,080,000 31,330,000 31,330,000 Total # of securities purchased Total $ of securities purchased (000s) 585,883, ,035, ,045, ,486, ,990, ,990,850 # of affordable housing rental units financed 20,884 29,072 27,847 20,603 27,149 27,149 # of home mortgages for low- and moderate- income borrowers financed 1, ,465 1,087 1,470 1,470 $ invested in enterprise development/job creation (000s) 15,604 11,967 33,187 25,241 29,291 29,291 $ invested in economic development (000s) 17,150 15,224 7,795 11,334 5,240 5,240 $ invested in statewide homeownership and down payment assistance (000s) 45,435 65, ,920 38,395 16,515 16,515 $ invested in affordable healthcare/rehabilitation facilities (000s) 410-4= # of SBA loans financed NA NA # of jobs created/retained NA NA Notes: (a) Financial data is from audited information based on a fiscal yearend of May 31. (b) All returns for each share class and the index are reported on a one-year or 12-month trailing basis. (c) Impact data is reported on a calendar-yearend basis (December 31). P. 7 CONFIDENTIAL NOT FOR DISTRIBUTION

11 THE CRA QUALIFIED INVESTMENT FUND IMPACT ANALYSIS 3 SUMMARY OPINION The CRA Fund s investment strategies are strongly aligned with its mission to provide CRA-qualified and other impact investments to its shareholders. The Fund s board of directors provides adequate oversight of its mission alignment. CCM s management team is exceptionally strong and well-known in the mutual fund industry as impact investment thought-leaders and are active in broader impact investment initiatives and forums. A comprehensive proprietary tracking system allows the Fund to expand beyond its stated impact mission to offer customized targeting of investments to its shareholders by geography and impact theme. It accurately tracks and presents impact data that demonstrates positive changes in alignment with its impact goals, including episodic reports on the longer-term social and environmental benefits that result from the Fund s investments. The Fund s advisor consistently reviews and uses the impact data to adjust its investment priorities and expand on its impact themes. ALIGNMENT OF STRATEGIES AND OPERATIONS The CRA Fund s investment strategies and activities, and those of CCM, the Fund s advisor, are clearly aligned with the CRA Fund s impact mission. The CRA Fund achieves its mission by purchasing investments that are closely aligned with the impact investment goals of the Fund s shareholders. Prior to purchasing any investment, the Fund s advisor thoroughly researches whether the investment s proceeds will be used to benefit the target community and meet the Fund s impact criteria. The CRA Fund s mission is to provide (1) a high level of current income consistent with the preservation of capital and 2) investments that will be deemed to be qualified under the Community Reinvestment Act of 1977, as amended (the CRA ). CCM pursues the Fund s mission by investing in debt securities and other debt instruments in governmentrelated subsectors of the bond market that finance affordable housing and economic development initiatives nationwide. Through this investment strategy, shares of the Fund may be considered as qualified under the CRA so that financial institutions subject to the CRA may receive investment test credit for shares of the Fund held in the financial institution s investment portfolio. In choosing investments for the Fund, CCM s research process combines impact research with financial analysis. From an impact perspective, CCM evaluates whether the prospective investment has as its primary purpose community development as defined by the CRA: provides affordable housing for low- and moderate income individuals; provides community services targeted to low- and moderate income individuals; funds activities that finance businesses (as defined by the SBA) and/or promote economic development; funds activities that revitalize underserved or distressed areas; 3 See the Impact Ratings and Descriptions attachment for an explanation of the impact rating criteria. CONFIDENTIAL NOT FOR DISTRIBUTION IMPACT ANALYSIS P. 8

12 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND supports or facilitates eligible projects or activities described in the Housing and Economic Recovery Act of Prior to purchasing any bond for the Fund s portfolio, CCM s shareholder relations team focuses its impact research on the use of the bond proceeds and how (and/or who) it will benefit and why it is an impact investment (e.g., how is a multifamily housing project benefiting the community), while the investment team analyzes the financial characteristics of the instrument. Any bond purchased must satisfy CCM s impact criteria and financial criteria. Shareholders of the Fund are given the opportunity to target specific geographies and/or impact themes. 4 Based on the selected targets, CCM s investment team seeks bonds that match the requested screens. Investments customized to geographies can target nationwide or by state or county. The Fund has offered geographic earmarking since its inception in Some investments will touch on multiple impact themes. For example, a multifamily housing investment may support affordable rental housing in a targeted geography and may also offer tenant facilities to support job-training or nutritional counseling. Table 1. Impact Themes as of 9/30/2016 IMPACT THEMES Affordable Healthcare/Rehabilitation Affordable Housing Disaster Recover Education/Childcare Enterprise Development/Jobs Environmental Sustainability Gender Lens Healthy Communities HUD Designated Human Capital Plan Neighborhood Revitalization/Redevelopment Rural Community Development Seniors/Disabled The Fund started offering the option of earmarking by impact theme after the creation of the institutional share class in Early impact themes grew from a combination of CCM s mission focus (i.e., investment strategies that contribute to positive environmental and social outcomes ) and the interests of the Fund s institutional shareholders. For each impact theme, CCM has established criteria that guide the investment team in seeking instruments to purchase for the Fund. CCM anticipates the list of impact themes will continue to grow as more investors seek impactful investments. CCM is in process of categorizing the Fund s existing investments by impact theme (see Tracks Data That Indicates Effectiveness below). Once a bond is purchased for the portfolio, it will typically be earmarked for a specific investor. No investment is double-counted. In some cases, for the Institutional Share class, a bond will be purchased prior to it being earmarked if its impact characteristics fit the Fund s criteria generally and its financial characteristics are strong. 4 A minimum $500,000 investment in the Fund is required for CCM to earmark specific investments. P. 9 CONFIDENTIAL NOT FOR DISTRIBUTION

13 THE CRA QUALIFIED INVESTMENT FUND Table 2. Fund Composition by Investment Type as of 9/30/2016 # OF INVESTMENTS $ OF INVESTMENTS ($000) % OF TOTAL ASSETS AVERAGE INVESTMENT SIZE ($000) Single-family mortgage-backed securities Multi-family mortgage-backed securities ,766 33% 2, ,711 37% 2,267 Municipal bonds ,815 21% 1,362 Asset-backed securities 77 87,845 4% 1,141 Corporate bonds 3 9,536 0% 3,179 Other investments (US Treasury security) 1 13,055 1% 13,055 Agency 6 11,993 1% 1,999 Cash and Cash Equivalent 2 52,273 3% 26,137 Total 1,984, % Table 2 lists the primary types of bonds and other instruments owned by CCM in pursuit of the Fund s mission. Included in cash are certificates of deposit and money market funds. An example of a recent investment was the purchase of a $1 million certificate of deposit from Self Help Credit Union, an established depository dedicated to creating and protecting ownership and economic opportunity for all CONFIDENTIAL NOT FOR DISTRIBUTION IMPACT ANALYSIS P. 10

14 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND MANAGEMENT QUALITY The CRA Fund s board of trustees provides adequate oversight of the Fund s impact activities. The Advisor s management team is very strong and strives to achieve deep impact performance for the Fund. Oversight of the Fund occurs directly by the Board of Trustees and indirectly by the Advisor and other service providers to the Fund. The board functions without term limits: three of five trustees are founding trustees appointed in The board s oversight of the Fund s impact activities is primarily focused on whether the Fund s investments are CRA-qualified rather than the broader impact goals promulgated for the Fund by its Advisor. Board minutes and reports do not include a discussion of the CRA Fund s impact performance although board members and management interviewed noted there are robust informal discussions of the Fund s impact performance outside of formal board meetings. CCM s leadership team is exceptionally strong and are nationally recognized as early adopters of impact investing in mutual funds. Senior management is committed to investing in staff and infrastructure to support the long-term growth of funds under management. The two-person shareholder relations team, which is responsible for impact research, and the 9- person portfolio management team work together collaboratively and effectively to evaluate both the impact and financial characteristics of each investment purchased. COMMUNITY CAPITAL TRUST Board of Trustees Officers John Taylor, chair, president and CEO of National Community Reinvestment Coalition, age 66 Burton Emmer, trustee, retired, former partner at Grant Thorton, LLP, age 79 Heinz Riehl, trustee, president of Riehl World Training & Consulting (bank consulting), age 80 Irvin Henderson, trustee, president and CEO of Henderson & Company (consulting firm), age 60 Robert Lehrman, trustee, business consultant and special counsel, age 81 David Downes, president, vice chair of Community Capital Management, age 76 Alyssa Greenspan, vice president, president and chief operating officer of Community Capital Management, age 44 James Malone, CFA, treasurer, chief financial officer of Community Capital Management, age 45 Stefanie Little, chief compliance officer, president of Little Consulting Group, age 48 Michael Malloy, secretary, partner at Drinker Biddle & Reath, age 56 The business of the Trust is managed by a five-member board of trustees that meets quarterly over two days. There are no term limits for trustees. Three of the current board members are original to the Trust. The trustees conduct business through four board committees: market risk, CRA compliance, audit, and governance. The Trust s board may change the CRA Fund s investment objectives without shareholder approval. The Trust is administered by SEI Investments Distribution Co. (SIDCo), headquartered in Oaks, PA. SIDCo is responsible for the distribution of the Trust s assets and maintaining its books and records. Also, SIDCo provides administrative support to the Trust s board of trustees. P. 11 CONFIDENTIAL NOT FOR DISTRIBUTION

15 THE CRA QUALIFIED INVESTMENT FUND COMMUNITY CAPITAL MANAGEMENT Senior Management Todd Cohen, chief executive officer/chief investment officer, founded Community Capital in As CEO, he focuses on strategic marketing initiatives, client relationship management and product development. In his role as CIO, Cohen oversees the investment team, strategy formulation for the firm s and client investment. Prior to founding CCM he co-founded SunCoast Capital Group. He holds a Bachelor s of Science in Finance from the University of Florida. David K. Downes, vice chair of CCM, serves as the primary liaison between CCM and the Board of Trustees for Community Capital Trust. Prior to joining CCM in 2004 he was President and CEO of Delaware Family of Funds, and COO and CFO of Lincoln National Investment Companies and Delaware Investments. Downes hold a Bachelor s of Science from Pennsylvania State University, and is a Certified Public Accountant. Alyssa D. Greenspan, president and chief operating officer, is responsible for creating long- and short-term strategies for the sales and marketing of products and services. She also manages the day to day operations of the firm and oversees risk management, portfolio compliance and client services. Prior to joining CCM in 2003, Greenspan was a senior equity analyst at Morningstar. She holds a Bachelor s of Science in Finance from Tulane University, and Masters in Business Administration from the University of Miami. Stephanie J. Little, chief compliance officer, is president of Little Consulting Group, which provides outsourced investment compliance services for national clients. Starting in 2010, she is responsible for overseeing all CCM and CCT related compliance. She has worked with registered mutual funds, hedge funds, private pooled vehicles, institutional and retail separate accounts and wrap programs. Little is a graduate of the University of Delaware and Widener Law School. James Malone, chief financial officer and director of investment platforms, joined CCM in He previously worked at Franklin Templeton Distributors where he was responsible for business development with research platforms across multiple distribution channels. Prior to Franklin Templeton, he was a senior product manager at Putnam Investments and a certified public accountant at PriceWaterhouseCoopers. He holds a Bachelor s of Science in Finance and Accounting from Northeastern University in Boston, MA. David F. Sand, chief impact officer and chief investment strategist, is primarily responsible for client and consultant services, strategic investment initiatives and business development. Prior to joining CCM in 2013 he co-founded Access Capital Strategies and served as president and CIO from 1994 to Sand received a Bachelor s Degree from Princeton University and a Master s Degree in Public Administration from Harvard University s John F. Kennedy School of Government. As of September 30, 2016, CCM had 22 staff members working in four teams: investment, shareholder relations, sales and marketing, and operations and financial. CCM is a privately-held company that is 56% owned by employees. The remaining 44% is owned by friends and family. Its board of directors is chaired by CCM s vice chair. Other board members are the CEO, President/COO and CFO. CONFIDENTIAL NOT FOR DISTRIBUTION IMPACT ANALYSIS P. 12

16 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND EFFECTIVE USE OF FINANCING RESOURCES The CRA Fund uses its resources effectively in pursuit of its mission. Total financing funds grew steadily at a compound annual growth rate ( CAGR ) of 8.5% during the period examined from FYE 2012 to September 30, 2016 (see Table 3). This growth rate kept pace with the growth in total investments outstanding, which grew at a CAGR of 8.6%. CCM s goal is to keep the CRA Fund fully invested, which is reflected in its deployment rate that hovered at approximately 99.8% for the period examined (see Figure 1). Net assets invested in CRA-qualified investments ranged between 92% and 98% between CYE 2012 and CYE 2016 (see Figure 2), which was greater than the Fund s stated investment guideline to, under normal circumstances, invest at least 90% of its net assets in debt securities and other debt instruments that the Fund s investment advisor believes will be CRA-qualifying. In general, CCM s investment strategy for the CRA Fund is to buy and hold investments, thereby providing a stable long-term source of financing for community and economic development projects. Per management, the CRA Fund s turnover rate is 20% to 25% compared to more than 100% in some bond funds. Much of the Fund s turnover comes from repayment and re-investment of portfolio investments. Investments purchased by the Fund (e.g., bonds for multifamily affordable housing projects or community facilities) are often combined with other financing sources needed to complete the project. CCM has effectively expanded the Fund s impact through the creation and implementation of various initiatives that align with CCM s mission to make investments that create positive social and environmental outcomes. TRENDS IN USE OF FINANCING RESOURCES Table 3. Use of Financing Resources FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE /30/16 Investment Securities Purchased - Pending Settlement $000s 48,346 43,025 57,742 23,157 41,270 33,929 Net Assets - CRA Shares $000s 1,148,680 1,292,722 1,380,548 1,464,075 1,518,857 1,550,693 Net Assets - Institutional Shares $000s Net Assets - Retail Shares $000s 159, , , , , ,818 34,128 40,624 35,103 33,755 86,141 82,927 Total Financing Funds $000s 1,390,312 1,562,629 1,625,047 1,693,724 1,941,024 1,980,368 Investments at Fair Value $000s Investment Securities Sold - Pending Settlement $000s Total Investments Outstanding $000s 1,387,344 1,559,604 1,612,146 1,689,884 1,937,299 1,984, , ,387,344 1,559,604 1,621,956 1,689,884 1,937,299 1,984,994 P. 13 CONFIDENTIAL NOT FOR DISTRIBUTION

17 THE CRA QUALIFIED INVESTMENT FUND Between FYE 2012 and September 30, 2016, Institutional shares grew at a CAGR of 16.89% compared to a CAGR for CRA Shares of 7.18%, reflecting the growth of institutional investors seeking impact investments with market-rate returns. Thus, CCM has expanded its impact themes to respond to the impact interests of the Fund s institutional shareholders, which are more expansive than the bank shareholders that are primarily interested in investments that meet CRA criteria. DEPLOYMENT Figure 1. Deployment Rates Deployment for the CRA Fund is calculated using total investments outstanding divided by total financing funds. Total investments outstanding includes investments owned, at fair value and investment securities sold pending settlement, which are securities that the CRA Fund has sold but carries as a receivable pending final settlement (i.e., transfer of cash). Total financing funds includes all net assets plus investment securities purchased pending settlement, which are securities that the CRA Fund owns but are carried as liabilities until the final settlement date. CONFIDENTIAL NOT FOR DISTRIBUTION IMPACT ANALYSIS P. 14

18 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND Figure 2. Allocations of Net Assets 6 Except for minimal net assets invested in cash and cash equivalents, between 96.2% and 98.1% of the Fund s net assets were invested in debt securities that were aligned with its mission during the period examined. At the same time, as the Fund s institutional shares have increased, the percentage of net assets in non-cra but impact-aligned investments has grown. At CYE 2016, the percentage of net assets in non-cra impact investments had grown to 4.9% of total net asset (versus 0.3% in the prior year) as CCM identified opportunities to purchase securities aligned with its broader mission priorities. CCM engages in other activities that demonstrate its commitment to growing the impact investment field: CCM has several active initiatives underway targeting several of its impact themes. In 2014, the company committed to invest $50 million in fixed-income investments financing sustainable agriculture. In 2015, CCM committed to invest $100 million in the Obama administration s new initiative to increase solar access for all Americans and announced its intent to invest $100 million in bonds financing rural economic development. CCM was an active participant in the Community Investing Working Group of The Clinton Global Initiative America, a program of The Clinton Global Initiative in 2013 and 2014, which addresses economic recovery in the United States. In connection with that initiative, CCM made a commitment to invest at least $200 million to help revitalize local communities throughout the US, which it surpassed. 6 Data not available for CYE 2011 or Per management, results for those years would have been similar to CYE P. 15 CONFIDENTIAL NOT FOR DISTRIBUTION

19 THE CRA QUALIFIED INVESTMENT FUND TRACKS IMPACT DATA THAT INDICATE EFFECTIVENESS The CRA Fund tracks appropriate output and outcome data to demonstrate it is meeting its mission to invest in CRA-qualified investments. It uses a proprietary data tracking system to comprehensively evaluate potential new investments and periodically verify impact data for existing investments. CCM has developed a proprietary database system ( the Tracker ) that is used extensively and effectively by staff to understand a client s impact investment needs and then use it to find new product for the client. Impact results are routinely reported through quarterly and annual impact reports to shareholders. CCM supplements these reports with quarterly newsletters and periodic white papers to educate potential investors on the opportunities to achieve their impact objectives. Table 4. Key Impact Data ($ in 000s) CYE 2011 CYE 2012 CYE 2013 CYE 2014 CYE /30/16 # of single-family mortgage-backed securities purchased $ of single-family mortgage-backed securities purchased # of multi-family mortgage-backed securities purchased $ of multi-family mortgage-backed securities purchased , , , , , , , , , , , ,497 # of municipal bonds purchased $ of municipal bonds purchased 52,980 91, ,510 73,231 34, ,335 # of asset-backed securities purchased $ of asset-backed securities purchased ,604 9,834 58,022 25,750 30,931 22,158 # of corporate bonds purchased $ of corporate bonds purchased 5, ,000 # of other investments purchased $ of other investments purchased 55,790 68,588 73,810 35,080 31,330 3,155 Total # of securities purchased Total $ of securities purchased 585, , , , , ,599 # of affordable housing rental units financed 20,884 29,072 27,847 20,603 27,149 n/a CONFIDENTIAL NOT FOR DISTRIBUTION IMPACT ANALYSIS P. 16

20 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND CYE 2011 CYE 2012 CYE 2013 CYE 2014 CYE /30/16 # of home mortgages for low- and moderate-income borrowers financed 1,861 1,289 1,465 1,087 1,470 n/a # of SBA loans financed n/a # of jobs created/retained n/a $ invested in enterprise development/job creation - 11,967 33,187 25,241 29,291 19,918 $ invested in economic development 17,150 15,224 7,795 11,334 5,240 16,920 $ invested in statewide homeownership and down payment assistance $ invested in affordable healthcare/rehabilitation facilities 45,435 65, ,920 38,395 16,515 95, n/a n/a Data not available at time of report Table 4 highlights the primary impact data that CCM has collected and reported for the Fund since its inception. Investments that support enterprise development include loans providing small businesses with access to capital, job training, and employment opportunities. More recently, CCM has started to screen all new investments for the impact themes noted above in Alignment of Strategies and Operations and is in process of categorizing all existing portfolio investments by those impact themes. Please note: Other investments purchased include certificates of deposit issued by banks or depository CDFIs (e.g., Self-Help Credit Union), US treasury securities, and/or money market funds. Year-to-year variations in specific output categories are driven, in part, by earmarking preferences of new shareholders in the Fund and/or changes in impact priorities of existing Fund shareholders. The decline in total securities purchased in CY 2014 resulted from net flows into the Fund being negative. Thus, trading volume was less than in prior or subsequent years. IMPACT DATA COLLECTION SYSTEMS CCM utilizes a variety of tools and methods for collecting and reporting impact data for the CRA Fund. The primary tool used by CCM for impact reporting is a proprietary database known internally as the CRA Tracker or Tracker system. CCM originally developed the system when the CRA Fund launched to track assessment areas for bank clients. It is now the central repository for all the Fund s transactions and for all the CRA and impact data on each investment purchased by the Fund. Tracker generates the CRA and impact portions of shareholder reports. CRA Tracker is a Microsoft Access database that has been significantly upgraded and customized over time. At the time of the Aeris site visit, CCM was in process of upgrading Tracker to integrate it with the firm s portfolio accounting and order management systems. At the point of initial investment, each shareholder completes an earmarking sheet that indicates their CRA requirements (for banks) and/or their impact preferences (geography and impact theme). P. 17 CONFIDENTIAL NOT FOR DISTRIBUTION

21 THE CRA QUALIFIED INVESTMENT FUND This information is stored in Tracker. When the investment team sources a potential new bond purchase, Tracker will match the bond s impact characteristics with the shareholders preferences. Prior to purchase, the director of shareholder relations conducts additional research on the impact characteristics of each bond (e.g. is there a community center or park associated with a housing project, is the project located near transit). A detailed qualitative report is prepared for each security and quantitative metrics are entered in Tracker. Once purchased, the investment is assigned in Tracker to a particular shareholder s account. Post-purchase, additional impact research is periodically conducted by the shareholder relations team. Credit watch lists are actively maintained for all credit holdings and, in some cases, site visits are used to verify a project s or business financial performance. USE OF IMPACT DATA CCM uses its impact data in several ways to meet its mission of providing clients with investments that are CRA-qualified and impactful. For each new investment, CCM prepares an executive summary on the security s financial and impact characteristics, which is provided to the shareholder to which the investment has been assigned. On a quarterly basis, all shareholders receive updates on the impact and financial performance of their earmarked investments. CCM management routinely provides detailed reports on each earmarked investment to its bank clients to assist in CRA exams. Over time, CCM has provided impact reports that have been used in more than 1,200 CRA exams. Tracker can drill down on a client s needs to the state and county level. Once a need is identified (e.g., a rural or HUD-designated underserved community), the shareholder relations and investment teams can seek investments that meet those needs. Investments purchased for the CRA Fund, such as multi-family housing bonds and healthcare or childcare facilities bonds, are often the primary financing source for the transaction. CCM collects information on all the sources of financing for the project when it purchases a project-related bond. This information is included in the report prepared for each investment at the time of purchase but currently is not aggregated for impact reporting purposes. CCM also uses its impact data to prepare its annual impact report and create white papers on impact investing and CRA compliance topics. Recent white papers were Place-based Investing and the Role of the Impact Investor published in 2015 and a paper on recent CRA regulatory changes in It also generates two quarterly newsletters one targeted to bank clients and one targeted to institutional clients. CONFIDENTIAL NOT FOR DISTRIBUTION IMPACT ANALYSIS P. 18

22 THE COMMUNITY REINVESTMENT ACT QUALIFIED INVESTMENT FUND RESPONSE TO RATING ANALYSIS CCM chose not to submit a written response. P. 19 CONFIDENTIAL NOT FOR DISTRIBUTION

23 THE CRA QUALIFIED INVESTMENT FUND ATTACHMENT IMPACT RATINGS AND DESCRIPTIONS The Impact Rating is an assessment of how well a fund pursues and achieves its impact goals. For funds that target investments to achieve positive and proven social or environmental outcomes, 7 the assessment is based on four key criteria: Alignment of strategy and operations: how well the fund's impact mission is reflected in its strategies, products, and data. Management quality: how well the board and management oversee and execute operations to achieve the fund s impact goals. Effective use of financing resources: how well the fund uses its financing resources, both directly and indirectly, in support of its impact goals. Tracking of data that indicate effectiveness: how well the fund tracks data relevant to its impact goals, whether the data indicate that the fund is accomplishing those goals, and how the fund uses the data to improve its effectiveness to achieve its impact goals. The Aeris rating committee scores the fund s performance in each of the above areas. Using the scores as a guide, the rating committee assigns the Impact Rating based on which of the following descriptions best fits the fund. RATING The Fund has exceptional alignment of its impact mission, strategies, activities, and data that guide its investment programs and planning. It fully and effectively uses its resources, both directly and indirectly, in pursuit of its impact mission. It has processes and systems that accurately track comprehensive data on an ongoing basis, and it can provide data showing positive changes in achieving its impact goals. Board and management consistently use the data to adjust strategies and activities to improve its effectiveness. The Fund shows strong alignment of its impact mission, strategies, activities, and data that guide its investment programs and planning. It accurately tracks relevant data that indicate that it effectively uses its resources to further its impact goals. However, it has limited activities beyond direct investments that support its mission. Board and management use the data on a regular basis to adjust strategies and activities in line with the Fund s mission. The Fund has reasonable strategies and activities given its impact mission. It tracks basic data that indicate its resources affect change consistent with that mission. Board and management use the data on a limited basis to adjust strategies and activities. The Fund may lack alignment of its impact mission, strategies, activities, and data. Either it lacks data to form an opinion of its impact or the data is unsatisfactory. It also may have a history of underutilizing its resources to further its impact goals. Board and management provide little oversight of impact strategies and activities. 7 See Impact Assessment Framework at the beginning of this report. CONFIDENTIAL NOT FOR DISTRIBUTION ATTACHMENT P. 20

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