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):

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):

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.

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):

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):

24 “Success is not measured in the amount of dollars you make, but the amount of lives you impact.” -CNote

25 Thank You!

26 Index

• CNote needs a comprehensive strategy to • Current Competition in Financial Literacy meet growth goals Programming • CNote has a Variety of Options • Include a Direct Investment Option • Millennials are holding on to more cash • Transparency is needed to prevent ‘Impact • Large sums of money are in low-return Washing’ investments or idle cash • Most Important Technology is Big Data • Changing behavior and accessing idle money Analysis is the key • Big Data Analysis Provides Key Opportunities • Pension Funds and Millennials are the keys • Risks & Other Considerations to CNote’s sustained success • Additional Short Term Cash Flow • Public Pension Funds as Investors • Impact Projections • CalPERS Assets Allocation • Other Opportunities • CalSTRS Assets Allocation • Sources • Public Pension Funds as Investors • Reconfigure Referral Program Structure • Develop Mobile Application • Millennials Need Financial Literacy Education 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):

28 Additional Short Term Cash Flow

CDFI Returns 2.9% Cnote Returns to Investor 2.5% Cnote Earnings 0.4%

Funds Earnings Current Cnote Funds $ 17,000,000 $ 68,000 ST Target Cnote Funds $ 100,000,000 $ 400,000 LT Target Cnote Funds $ 1,000,000,000 $ 4,000,000

Additional Cash Flow After 1 year $ 332,000

Additional cash flows expected from increasing funds from $17M to $100M $332,000 Available for medium term developments: app and fin. Ed. Programs Impact Projections

Socio Economic Impact by Funds Size

47059

800 4706 7059 706 120

$17,000,000 $100,000,000 $1,000,000,000

Assets Jobs Created Businesses Impacted Other Opportunities

Green Bonds Micro-investing Financial Advice

• Partner with • With Round-Ups • 24/7 Online institutions with and other forms of Customer Support ‘green small amount designed for funds/bonds’ investing financial advice • Lowering minimum • Additional Paid amount that user service for can invest individual advising

31 Sources

Bombardier, Jennifer. “Mobile Banking One of Top Three Most Used Apps by Americans, 2018 Citi Mobile Banking Study Reveals”. 26 April 2018. https://www.prnewswire.com/news-releases/mobile-banking-one-of-top-three-most-used-apps-by-americans- 2018-citi-mobile-banking-study-reveals-300636938.html. Accessed October 2018. CalPERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2017. Accessed October 2018. CalSTRTS Investment Branch November 2017 Investment Policy and Management Plan. Accessed October 2018. Carter, Shawn M. “Younger Americans aren’t Investing in the Stock Market: Researchers Think This is Why”. CNBC.com. 16 May 2018. https://www.cnbc.com/2018/05/16/gallup-why-younger-americans-arent-investing-in-the- stock- market.html. Accessed October 2018. CNote 253 (g)(1) File no. 024-10686. Accessed October 2018. Coombes, Andrea. “Millennials are Good at Saving, but Investing? Not so much”. Forbes. March 2018. https://www.forbes.com/sites/andreacoombes/2018/03/13/millennials-are-good-at-saving-but-investing-not-so- much/#20c636077266. Accessed October 2018. Elkins, Kathleen. “A Growing Percentage of Millennials have Absolutely Nothing Saved”. 12 February 2018. CNBC. https://www.cnbc.com/2018/02/09/a-growing-percentage-of-millennials-have-absolutely-nothing-saved.html. Accessed October 2018. GIIN Annual Impact Investor Survey 2018. Accessed October 2018. Kozlowski, Rob. “Largest U.S. Retirement Funds Set Record at $10.3 Trillion in Assets”. 5 February 2018. Pensions & Investments Online. https://www.pionline.com/article/20180205/PRINT/180209922/largest-us-retirement-funds-set-record-at-103-trillion-in- assets. Accessed October 2018. PwC. Millennials & Financial Literacy—The Struggle with Personal Finance. 2015. https://www.pwc.com/us/en/about- us/corporate- responsibility/assets/pwc-millennials-and-financial-literacy.pdf “Mobile App versus Mobile Website Statistics”. https://jmango360.com/wiki/mobile-app-vs-mobile-website-statistics/. Accessed October 2018. Ogden, John. “3 Words to Win Millennials: Better. Mobile. Banking”. 2 January 2018. https://www.mx.com/moneysummit/better-mobile-banking-millennials. Accessed October 2018. Pension Plans in the US Industry Report. IBISWorld.com. Accessed October 2018. “Research Data Management”. Florida State University Libraries. 13 March 2018. http://guides.lib.fsu.edu/datamanagement. Accessed October 2018. “What’s the Cost to Maintain an App”. https://www.app-press.com/blog/whats-the-cost-to-maintain-an-app. Accessed October 2018. Yarmosh, Ken. “How Much Does an App Cost: A Massive Review of Pricing and Other Budget Considerations”. 4 February 2018. https://savvyapps.com/blog/how-much-does-app-cost-massive-review-pricing-budget-considerations. Accessed October 2018.