VIEWS: 1 PAGES: 30 POSTED ON: 1/9/2012
Fulcrum Funds, LLC Social Impact Assessment Peter Kennedy, Founding Partner Final Presentation Steven Aronowitz, JD ‘08 Michael Pearce, MBA ‘08 May 2, 2007 Agenda Overview Project Scope Background on the industry Social Impact Assessment Options Applying to Fulcrum Funds Metrics Illustrative example Implementation and Conclusions Project Overview Client: Fulcrum Funds, LLC Targeted $100m private equity fund focused on investments primarily in the healthcare industry Currently fundraising – seeking to offer potential investors both financial and social return Scope: Refine methodology and criteria to measure and report on social impact of portfolio companies Blended value investment CSR of the investment management sector Investors increasingly want to invest their values – potential strategic differentiator for managers One in ten investment dollars in the US is managed in accordance with some type of social criteria (Social Investment Forum) Private equity relatively uncharted territory At least 59 funds with assets over $2.6 billion (RISE project) Arguably a better vehicle for blended value investment since public company issues are removed Social Impact Assessment You’re looking for the Holy Grail!!! Investment managers historically judged only financial performance How well they track an index, what return they provide If they are going to have social investment criteria as part of their mandate, it needs to be done in a systematic manner Desire to quantify social impact Huge challenge defining standards The Quest for the Holy Grail SIA Industry Example Social Return on Investment Calculate an absolute dollar value of social return on investment Select specific criteria to examine Magic Wheels - Social Return on Investment Company by company basis (specific product impact) Company-specific criteria Year 1 Year 2 Year 3 Year 4 Year 5 Employment of disabled 100 120 144 173 207 General metrics (environment, job Improved Health 50 60 72 86 104 creation, average wage, etc.) ETC xx xx xx xx xx Investment decisions based on social TOTAL $150 $180 $216 $259 $311 projections Able to monitor social performance Standard criteria Year 1 Year 2 Year 3 Year 4 Year 5 versus projections Environmental impact 25 25 25 25 25 Jobs created 35 37 39 41 43 Women/Minority owned 25 25 25 25 25 Advantages ETC xx xx xx xx xx $85 $87 $89 $91 $93 Provides absolute numerical value Removes ambiguity TOTAL Social Return $235 $267 $305 $350 $404 Based on multiple assumptions… Disadvantages Doesn’t have impact relative to similar companies Many assumptions required to make calculation SIA Industry Example Relative Analysis: Stakeholder Quotient Perennial Healthcare Management - Stakeholder Quotient Analysis based on demonstrating 10 20 30 40 50 60 70 80 90 100 relatively strong performance Shareholders Perennial Healthcare 80 Skilled Nursing Ind Avg 50 Criteria: Customers Standardize categories of comparison Perennial Healthcare 50 and apply to all companies within a sector Skilled Nursing Ind Avg 70 Maintain baseline industry standards to Employees Perennial Healthcare 60 measure against Skilled Nursing Ind Avg 30 Suppliers Perennial Healthcare 80 Advantages Skilled Nursing Ind Avg 50 Standardizes for all portfolio companies Community Perennial Healthcare 90 Demonstrates best-in-class versus Skilled Nursing Ind Avg 40 individual performance Environment Perennial Healthcare 90 Skilled Nursing Ind Avg 80 Disadvantages Overall Perennial Healthcare 75 Does not have absolute dollar value Skilled Nursing Ind Avg 53 Perhaps less relevant for projected social impact SIA Industry Example Fund Scorecard Compare Fulcrum Funds to other similar funds Criteria: 90 Stakeholder Quotient and/or 80 Social Return on Investment 70 Compare with healthcare sector funds 60 Relative 50 Advantages Value 40 SQ Apples to apples 30 SROI Speaks directly to investor choices 20 10 Disadvantages 0 FF X Y Difficult to get data from other funds Calculation may be arbitrary Companies Possible Hybrid Model To combine the advantages of both the absolute dollar value (SROI) and relative scorecard (SQ), calculate both Fulcrum Average Medical Device Funds Fund – Average of rest of industry Company Magic Hot Wheels Classic Wheels Wheels SQ 90 74 62 SROI $1.2M $.9M $.6M Key Insights from Industry Research Identifying specific 2nd bottom line goals is most important initial step PCV is focused on three specific criteria: capital to underserved geographies, jobs creation and minority/women-led businesses CalPERS California Initiative Program has the specific goal of investing in California’s underserved areas Analysis that shows social impact relative to industry norms and baseline metrics has the most credibility Demonstrating why a portfolio company has superior social potential relative to peers, not in absolute terms However, sourcing data about private comparables to do a relative analysis will be a challenge Quantifying social impact received mixed reviews in terms of value and ability to measure Absolute dollar value versus “score” Linking Insights to Fulcrum’s Priorities Fulcrum’s priority is to quantify impact in terms of dollars Need to communicate with investors Looking for corresponding value to financial return Strong preference for quantitative data Impact on what? Utilize first insight and identify Fulcrum’s values Create strategic focus on existing core competency or develop a competency Trade offs between impact goals requires clear priorities Universe of potential impact is so broad it is difficult to measure “You have to measure “We have to choose between what is important to solar panel companies focused your client, any metric on fair labor standards or must have meaning for focused on toxics recycling. them.” Both are important goals but which matters most to us now?” Sara Olson, Brian Dunn, SVT Group Aquillian Investments Fulcrum’s Social Impact Focus Fulcrum Fund has identified three main areas to focus the Social Impact of portfolio companies Product – the impact product / service Environmental – sustainable operations Community – employee practices, donations, etc. Measuring Impact on Fulcrum’s Focus Identifying expected results from reaching general goals Indicators of success Measurable outcomes Baseline comparisons Deciding on specific metrics Assigning dollar value to each outcome Incorporate Fulcrum’s existing portfolio metrics Linking to established and accepted measurements “Where there’s smoke, there’s fire.” Detailed Metrics Product Impacts Social value of access to care in previously underserved areas Value of one additional Dr. visit per year Value of availability of medical consultation Value of hospital care being closer (a $ per mile closer calculation) Value of primary physician being closer ($ per mile or $ per increased visit) Value of reducing costs to Medicare Value of in home care v. hospital care Social value of product impact Increased mobility Social value of longer life Social value of higher quality life Novel products that are increasing quality of life, but also lowering costs short term and long term Social value created by product after patent period ends – option value potential Environmental Impacts Reduction in carbon footprint Use of environmentally sound transportation Increase in recycling/reduction in waste Sustainability of facilities construction and renovation Smart growth land use or redevelopment (infill) Community Impacts Under employed population employees Higher quality jobs/higher wages/better benefits than traditionally available Charitable/in-kind donations Company by company Support for local civic activities Fulcrum’s Metrics in Action Fulcrum Hypothetical Investment – Rural Healthcare Facility Rural Healthcare Facility providing 5 new physicians; 10 new nurses Population of 25,000 within service area Within 75 mile radius from facility Provides general family practice, emergency care, in-home nursing care $5,000,000 required investment SIA Components Product: Improved access to healthcare Environmental: Better practices for travel Community: Contribution to local economy Product Metrics – Rural Healthcare Public Health Service classifies counties as primary care shortage areas if they have more than 3,000 persons per physician Nationally, residents of the most rural counties have the: Highest death rates for children Type of Market Deaths/100k Rate and young adults Large central 886.8 0.89% Large fringe 834.5 0.83% Highest mortality from ischemic Small 887.6 0.89% heart disease and suicide With city >10k 923.1 0.92% Without city >10k 936.1 0.94% Higher percents of adults with chronic health conditions Fulcrum market - now 140.415 Fulcrum market - potential 125.175 Highest obesity rates Difference - Lives Saved 15.24 Lowest Physician rates Average local salary $37,564 Implied Total Value - Year 1 $572,475 Environmental Metrics Carbon emission reduction value - $7.75 per ton Market price from range of carbon offset prices Asses Clinic Carbon Footprint Clinic Emissions Energy, supplies, shipping, labs Home visits by caregivers Employee commute Identify carbon reduction areas High gas mileage vehicles for home visit staff Energy efficient appliances and lighting Paperless filing systems Compare reduced emission rate with previous or standard carbon output and calculate value of carbon saved Basic Carbon Analysys - Vehicle Annual tons of carbon reduced per car 2.68 Times social value of carbon per ton $7.75 Equals social value per upgraded car per year $21 Times number of cars in the fleet 15 Total social value of upgrade $312 Total Predicted Carbon Value - Year 1 $312 Community Metrics Rural physicians are key young professionals Various studies to analyze the economic impact of additional doctors in a rural community Additional jobs created Economic multiplier effect of doctor/nurses salaries Summary of rural studies Doeksen: Value of a Rural Doctor $1,718,530 University of Minnesota $5,000,000 Center for Rural Health Hazard $10,000,000 National Center for Rural Health Professionals $1,589,500 Average Total Value - Year 1 $4,577,008 Total SROI of Investment Combine the various impacts Calculate total return on investment for defensible period $$$ value Value - Year 1 SROI Product $572,475 Environment $312 Community $4,577,008 Total Year 1 $5,149,795 Total Years 1-5 $25,748,974 SROI 43% Implementation Guidelines Focus on refining metrics Envision a “desired state,” and work backward to find the statistics that will support that goal Constantly monitor and update Unlike financial ROI, SIA will and should continue to evolve Participate in industry consensus building SVT open source database of criteria being built 3rd party auditor to validate the calculated social impact Especially given the lack of transparency of the private equity market Including direct conversations with portfolio companies Conclusion - Measuring Social Impact in $$$ Powerful tool Absolute value Accurate cost benefit analysis Accountability Difficult to implement Endlessly spreading ripples Separating impact from turbulence Non-dollar impacts One step at a time Many people are working on the problem Creating database of metrics This is the start Value Added to Client Understanding of Competitive Landscape Difficult to approach potential competitors on what might be considered a differentiating competency Expert insight SIA structure best suited given Fulcrum’s goals New SIA in practice Verifiable data to apply to portfolio companies immediately New contacts Like-minded professionals with a vested interest in seeing Fulcrum succeed Value to Students Understanding SIA field Speaking with giants in the industry Learning about the many models for measuring Important and growing area of investing Exploring early dollar valuation of SROI See how knowledge builds over time Joining debate over why and how to value Working to establishing standards Mike got an internship!!! “Just another brick in the wall.” Questions??? Appendix Project Scope - Detail Contacts Resources Scope of Project / Timeline The Project was divided into three phases Phase 1: Survey industry trends and standards for SIA Phase 2: Identify key metrics and refine existing SIA Phase 3: Analyze results of new SIA with applied to current portfolio company Week 1 2 3 4 5 6 7 8 9 10 11 12 Analyze FSIA and research industry - Interview industry thought leaders Phase 1 standards - Online guidelines/ published methodology Identify relevant criteria, formalize - Focus on healthcare relevant categories Phase 2 methodology and modify FSIA - Use respected data sources to create metrics Apply refined FSIA to Fulcrum - Perennial Healthcare Holdings SIA Phase 3 portfolio - Compare to original analysis FSIA = Fulcrum Social Impact Assessment Project Scope - Detail Stage 1: Research and analysis of Fulcrum’s Stage 3: Application to an existing or potential current evaluation system. Fulcrum investment Step by step breakdown of Fulcrum’s screening Apply improved Fulcrum social evaluation to an and forecasting system. investment. Comparison of Fulcrum to industry best Compare improved results with results from prior practices. Fulcrum evaluation system. Analyze specific key metrics that are used by Analyze the impact of improvements. social investors industry-wide Confirm applicability of evaluation to calculate a Analysis of purpose and effectiveness of total social impact value for Fulcrum’s fund Fulcrum’s evaluation. Identify specific key metrics that are applicable to Additional: Fulcrum’s industry focus (e.g. rural or low income healthcare, clean tech) Consider organizations best suited to developing and maintaining industry-wide social impact Stage2: Suggestions for improvements. measures Identify key areas of improvement for evaluation system in methodology and specific criteria. Suggest modifications to improve Fulcrum’s social measurement accuracy and efficacy for specific criteria Develop a methodology to approach social impact assessment that can be applied broadly Contacts Individual Interviews Brian Dunn, Aquillian Investments Lloyd Kurtz, Nelson Capital Management Yvonne Lu, Long Life Clinic Network Sarah Olsen, SVT Group Jason Oppenheimer, Pax Water Beth Sirull, et al., Pacific Community Ventures Pierre Trevet, Innovest Other firms – various individuals Acumen Fund Bay Area Equity Fund Good Capital REDF Key Resources GSVC website: http://socialvc.net/index.cfm?fuseaction=Page.viewPage&pageId=58 RISE Project: http://www.riseproject.org/ UNC: http://www.ccc.unc.edu/documents/cccDoubleBottomLine.ppt REDF: http://www.redf.org/resources-general.htm#sroi
"Fulcrum Funds - Final Presentation - v4"