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Challenging business school students to use financial innovation and investment strategies to create returns and scalable impact

Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

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Page 1: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Challenging business school students to use financial

innovation and investment strategies to create returns and

scalable impact

Page 2: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

4th year of I3C (now MS –SIC) 2011: NYC @ JPM

2012: SF @ SF Federal Reserve Bank

2013: Washington DC @ World Bank

2014: NYC @ Morgan Stanley

Page 3: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

39 schools, globally

72 teams

Page 4: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

112 prelim round judges

17 final day judges, representing $10’s billions in investment capital

24 investor mentors

Page 5: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Inspiring & motivating: Janine Guillot, ex CALPERS Operating CIO, on why institutions are driving sustainable investing

Page 6: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

MS-SIC winner: Fresh Coast Capital (Kellogg)

UC Berkeley, Haas School

Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University

Johns Hopkins School of Advanced International Studies

Yale School of Mgmt, Yale School of Forestry & LBS

Said at Oxford

Darden at University Virginia

Sustainability Mgmt at Columbia

INSEAD

Page 7: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and
Page 8: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Source: EPA.

Brownfields

“Abandoned, idled or underused properties whose redevelopment is encumbered by real or perceived

contamination.”

Page 9: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Sources: GAO, HUD.

A $650 billion problem

…450,000+ brownfields nationwide

5,000,000+ acres of abandoned industrial sites…

…which would cover 60 of our largest cities

Page 10: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Brown-to-green impact

Sources: De Sousa, C. & Wu, C. , GWU, Greatecology.com.

Property Values

Tax Revenue

Smart Growth

Environmental Justice

5-15% increase for properties up to ¾ mile from the site

$11B annual local tax revenues across 500 cities

1 acre brownfield redevelopment = 4.5 acres of countryside saved

Brownfields are disproportionately located in low-income communities

Page 11: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Sources: Ron Zalesny, U.S. Forest Service.

The hybrid poplar solution

Fast growing trees that offer…• Profitable timber products within 4 years• A natural form of land detoxification• Land value appreciation

Page 12: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Fresh Coast Forest Fund

Page 13: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Why brownfields don’t move

Page 14: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Poplar trees provide an elegant solution

Page 15: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Our model brings together existing strategies

Page 16: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Source of Fresh Coast returns

Source: Greenwood Resources.

Page 17: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Source of returns: pulp, paper and timber

Location of Wood-Using Mills

State of the Industry

Proximity to Market

Page 18: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Source of returns: biomass power

Source: U.S. Department of Energy.

Current Biomass Power Facilities• Every 4 years, poplars are harvestable for wood products that supply fuel for biomass power plants and modular power facilities

• 38M tons of wood currently used for biomass power to supply U.S. electric consumption, producing 5x the wattage of solar PV

• $1.2B in U.S. spending on biomass electric power in 2013

Page 19: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Source of returns: land value appreciation

Source of Returns

State Agencies’ Approved Remediation Vendors Lists

Municipalities seeking…• Productive use• Remediation• Redevelopment potential

Corporate polluters and private land owners seeking…• To satisfy EPA• Improve land value• Redevelopment potential

Customers

$0 current land value

Vacant land now productive

Trees green the community

Remediated contaminants

• Equity Promote giving Fresh Coast 15-20% of appreciation value at sale or reassessment

• Remediation fees

Monetizing AppreciationFuture value: Tens of thousands of $$

Page 20: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Investment criteria

At least 500,000 acres for Fresh Coast Capital

Operating industrial

land needing

remediation

450,000+ brownfield

sites

5,000,000+ acres vacant

land

1. Sites should not have significant structures

2. If sites are contaminated, should be approved for remediation through planting trees

3. Sites should be about 40 near-contiguous acres

4. Sites should be near a profitable market for forest products

5. Sites should ecologically support growth of poplar trees

6. Site owners should be willing to wait 8-16 years for development

Available Acreage

Page 21: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Scaling the fund

Series I Series II

Size $50 Million $250 Million

Acreage 25,000 125,000

Investment Manager Fresh Coast Capital

Fund Name Fresh Coast Forest Fund

Fund Structure Evergreen Fund with 10-year renewal periods

Fee Structure 1% management fee, 20% performance fee

Page 22: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Powerful returns compete with typical timber…

Sources: Treasury.gov, Greenwood Resources.

Forestry returns70% pulp, paper, timber

20-year real returns (net)

Forestry Ops. 8.1%

Total return 10.8%

Real Returns 10yr. 20 Yr.

Treasury Real Return (TIPS) 0.6% 1.0%

Typical timber returns 5%– 8%

Fresh Coast Forest Fund 6.5% 10.8%

Asset Characteristics• Low liquidity • Current income• Low correlation with other

asset classes• Inflation hedge• Tax advantages

Land appreciation &

remediation

Forestry returns30% biomass

Page 23: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

A $5M investment: current income + long-term returns

$(5)

$(4)

$(3)

$(2)

$(1)

$-

$1

$2

$3

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19Land Payouts

Timber Payouts

Biomass Payout

20-year investmentIRR: 10.8%

Cash multiple: 3.4X

10-year investmentIRR: 6.5%

Cash multiple: 1.7X

Page 24: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Return enhancement opportunities

Environmental Impact

Carbon credits

Stormwater Management

Government Grants

Other Poplar Products

Biochar

Cellulosic ethanol

Diversifying Crops

Willows

Switchgrass

Page 25: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

A profitable and impactful opportunity

Environmental impact

Community impact

Competitive Returns for

Investors

Page 26: Challenging business school students to use financial ...assets1c.milkeninstitute.org/.../Slide/GC14-4868.pdf · Challenging business school students to use financial innovation and

Special thanks to our advisors

US Environmental Protection Agency

• Adam Klinger, Repowering America’s Land

• Ann Carroll, Office of Brownfields and Land Revitalization

• Gail Cooper, Office of Brownfields and Land Revitalization

• Donna Perla, Office of Research and Development

• Linda Fiedler, Technology Assessment Branch

• Dan Powell, Technology Integration Branch

Timber Management & Brownfield Redevelopment

Biomass EnergyInvestment Management & Northwest Indiana Development

• Jeff Nuss, Greenwood Resources• Paul Young, Conservation Forestry• Ron Zalesny, Poplar

phytoremediation expert, US Forest Service

• Marv Marshall, Restore the Earth• Donna Duscharme, Delta Institute• Todd Parker, Delta Institute• Eve Pytel, Delta Institute• Todd Davis, Hemisphere

Development• Scott Sherman, Hemisphere

Development• Blase Levin, Technical Assistance to

Brownfields

• Bill Holmberg, Biomass Coordinating Council, American Council on Renewable Energy

• Amanda Martinez, Bull Moose Energy

• Bryce Stokes, Department of Energy, Forest Operations Research

• Ed Gee, U.S. Forest Service, Woody Biomass Utilization

• Phil Hetzner, Keystone Industries

• George McClellan, Keyston Industries

• Dave Chen, Equilibrium Capital Group

• Saurabh Narain, National Community Investment Fund

• Jason Scott, EKO Asset Management

• Michele Oertel, Indiana Finance Authority Brownfield Program

• Jack Eskin, NW Indiana Regional Planning Commission

• Joe Van Dyk, City of Gary Redevelopment Director