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Sustainable Growth Strategies in the Age of Millennials Amanda Flecha, Ryan Roach, Sophia Schuster, Anoop Sharma, Harvey Weidman

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Sustainable Growth Strategies in the Age of Millennials Amanda Flecha, Ryan Roach, Sophia Schuster, Anoop Sharma, Harvey Weidman November, 2018 CNote: Sustainable Growth Strategies in the Age of Millennials Amanda Flecha, Ryan Roach, Sophia Schuster, Anoop Sharma, Harvey Weidman 2018 SMEAL SUSTAINABILITY CASE COMPETITION CNote needs a comprehensive strategy to meet growth goals 1. Financial products should not serve just the wealthy few 2. Financial prosperity doesn’t have to be zero-sum Commitments to CNote ($ M) $1,000 $100 $17 $0 2016 2018 2 CNote has a Variety of Options BIG DATA 3 Millennials are holding on to more cash Millennial Investing vs Saving ($ T) Reasons for holding cash: • 6-month rule • 5-year rule 5 • Recent stock market crashes Best Investment Options: • Bonds, Gold, Savings acct – 39% 15 • Real Estate – 32% • Stocks/investments – 26% • Other – 4% Cash Invested 4 Large sums of money are in low-return investments or idle cash US Pension Fund Asset Allocation 1% 100% 17% 21% 28% ~$976.5 B 80% x 1% = 23% 29% $9.8 B 60% 21% 40% 60% 50% 50% 20% 0% 2007 2012 2017 Equities Bonds Other Cash 5 5 Changing behavior and accessing idle money is the key 6 Pension Funds and Millennials are the keys to CNote’s sustained success Pension Funds as Data Collection and Attracting and Source of Improved Risk retaining millennials Investments Assessment Short term (<1 yr): Medium term (1-2 yrs): Long term (>2 yr): Seek and attract Improve referral Big Data Analysis to public pension funds to program, implement assess project risks and capture part of their mobile app, provide expected returns of investment portfolio financial education selected projects for programs and offer direct investing investment option 7 Pension Funds and Millennials are the keys to CNote’s sustained success Pension Funds as Data Collection and Attracting and Source of Improved Risk retaining millennials Investments Assessment Short term (<1 yr): Medium term (1-2 yrs): Long term (>2 yr): Seek and attract Improve referral Big Data Analysis to public pension funds to program, implement assess project risks and capture part of their mobile app, provide expected returns of investment portfolio financial education selected projects for programs and offer direct investing investment option 8 Public Pension Funds as Investors Federal Govt’ Pension Funds Employees Pension Funds $976.5 18.6% 34.1% billion State and Local Private Govt’ Employees Pension Pension Funds Funds 47.3% = $643.5B Govt’ sponsored funds Market Share in 2017 5.4% California Public Employees’ Retirement System (CalPERS) 94.6% Other 3.8% California State Teacher’s Retirement System (CalSTRS) 9 CalPERS Assets Allocation Asset Class Current Allocation New Interim Target Allocation Global Equity 48.3% 46.0% Private Equity 8.0% 8.0% Global Fixed Income 19.4% 20.0% Real Assets 11.2% 13.0% Liquidity 4.8% 4.0% Inflation Assets 7.8% 9.0% Total Plan Level 0.5% -- TOTAL FUND 100.0% 100.0% Inflation Assets 7.8% → 9.0% New Inflation Assets allocation Low risk 1.2% asset classes new impact $4.2 billion ~2.5% returns investments 1.2% of $350 bi 10 CalSTRS Assets Allocation Assets Actual Current Target Global Equity 53.51% 54.0% Fixed Income 12.17% 13.0% Real Estate 12.95% 12.0% Private Equity 8.11% 8.0% Cash/Liquidity 1.94% 2.0% Inflation Sensitive 1.81% 2.0% Risk Mitigating Strategies 8.89% 9.0% Innovative Strategies 0.21% 0.0% Strategic Overlay 0.41% 0.0% TOTAL INVESTMENT ASSETS 100.0% 100.0% 1.94% → 2.0% New Cash/Liquidity Cash/Liquidity allocation asset classes 0.06% ~2% new impact $140 investments returns million 0.06% of $235 bi 11 Public Pension Funds as Investors CalPERS new CalSTRS new allocation allocation $4.2 $140 billion + million $4.3 billion New investments Short-term 12 Pension Funds and Millennials are the keys to CNote’s sustained success Pension Funds as Data Collection and Attracting and Source of Improved Risk retaining millennials Investments Assessment Short term (<1 yr): Medium term (1-2 yrs): Long term (>2 yr): Seek and attract Improve referral Big Data Analysis to public pension funds to program, implement assess project risks and capture part of their mobile app, provide expected returns of investment portfolio financial education selected projects for programs and offer direct investing investment option 13 Reconfigure Referral Program Structure -OR- •Investors must refer 3+ new investors to receive a one-time •Investors can refer 1 – 6 new investors 0.25% per annum bonus to receive a one-time 0.08% per annum interest increase on their bonus per referral interest increase on outstanding principal amount. outstanding principal amount. •New investors must purchase $1,000+ in principal of CNotes. 14 Develop Mobile Application Current Trends Online Banking Mobile Applications Millennial Purchase Preferences wish they could do banking on 85% smartphones Millennials 58% say it’s important that banks have a 81% quality mobile Millennials app Prefer mobile apps Prefer other 15 Millennials Need Financial Literacy Education 76% 30% 44% 41% with no basic are frequently of college-educated of 25-34 year-olds financial overdrawing on carry multiple had $0 in savings in knowledge their checking sources of 2017 accounts outstanding long- term debt Lack of trust in financial institutions, investments, or services 16 Current Competition in Financial Literacy Programming PwC • Curriculum with Educators in Public CNote Earn Your School for grades 3-12 Future • Not for CNote’s adult Millennial • Target adult millennials Program market • Easy to understand, but more technical and robust content • Topics like: • Multilingual forums Capital One • Understanding MoneyWise • Advocacy programs to provide free Interest materials Program • Optimizing Credit • Clinical and hard to find Score • Include and highlight the social impact that • Practical stories and lessons like: can come from Negotiating Your Phone Bill, What Acorns properly managed Grow You Need to Know Before You Sign finances Program That Lease • Blog stories and quick advice 17 Include a Direct Investment Option Current Investment Structure OR Additional Investment Option Monthly Featured Project will attract more investments and more customer engagement by allowing self-selection. -OR- Monthly update and newsletter from community business will continue engagement. Adding a “human” element will appeal to user’s need for connection. OR Pool of Low-Risk Monthly Featured Projects Community Project 18 Pension Funds and Millennials are the keys to CNote’s sustained success Pension Funds as Data Collection and Attracting and Source of Improved Risk retaining millennials Investments Assessment Short term (<1 yr): Medium term (1-2 yrs): Long term (>2 yr): Seek and attract Improve referral Big Data Analysis to public pension funds to program, implement assess project risks and capture part of their mobile app, provide expected returns of investment portfolio financial education selected projects for programs and offer direct investing investment option 19 Transparency is needed to prevent ‘Impact Washing’ How to prevent ‘impact washing’ and gain credibility 80% 41% 31% 26% 21% Percent of of Percent Respondents Greater 3rd Party Principles to Investor Market risk Transparency Certification govern commitment to mechanism investors code-of-conduct Millennials and young investors want to see where their money is being invested and have demonstrated a willingness to take on more risk in the past year. CNote should work toward providing direct investment options in the future to appeal to more millennials. 20 Most Important Technology is Big Data Analysis Importance of various technologies over next 3 years 7% 8% 17% 25% 40% 36% 54% 47% 55% 52% 45% 56% 38% 45% Percent of of Percent 29% Respondents 23% 15% 8% Big Automated data Blockchain Machine Algorithms for Augmented Data collection/analysis technology learning/AI portfolio / VR Analysis management technology Very Important Somewhat Important Not Important Benefits of Big Data Analysis: Risk Assessment Track & Measure Impact Trend Analysis 21 Big Data Analysis Provides Key Opportunities • Further assessment can optimize CNote financial returns for CNote and Risk investors • Collect data related to: Assessment • Can allow for direct investment option • Investment opportunities • ROI • Before and after • Measuring impact is an ongoing issue investment impact Track & for most investment institutions • Improvement in Measure • Track towards UN SDGs Impact SDG related areas • Attract new investors • Use A.I. and third party platforms to begin analyzing big data • Identify key markets with greatest • Work with projects impact/growth potential being funded to Trend Analysis • Provide more options in key markets identify other with growing investor interest opportunities 22 Risks & Other Considerations Risks: • Large up front costs to generate education material, application for mobile users and setting up data collection/management system • There may be barriers to working with state pension funds • Calculating riskiness of individual projects and their returns to investors may take time Other Considerations: • Need to ensure there is a steady stream of projects coming in from CDFI’s for direct investment option • Need to maintain steady funding into current categories and specific projects • Ensure that these efforts are not perceived as ‘impact washing’ by current investors 23 Pension Funds and Millennials are the keys to CNote’s sustained success Pension Funds as Data Collection and Attracting and Source of Improved Risk retaining millennials Investments Assessment Short term (<1 yr): Medium term (1-2 yrs): Long term (>2 yr):
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