STEVEN PRESENTS Intro Mike and Steven Intro Peter Kennedy, point him out in the room. Peter J. Kennedy , Founding Partner . Peter has over 18 years of industry and investing experience. He spent nine years at Morgan Stanley in New York and London researching and evaluating early-stage technology and telecommunications companies. At Morgan Stanley, Peter brought 11 initial public offerings (&quot;IPOs&quot;) to market in the amount of over $1 billion and was a top Institutional Investor ranked equity analyst. Beyond his public market research, he was requested and retained by many of the larger private equity firms to evaluate new investments and restructuring opportunities. Peter has focused exclusively on the medical device and elder care markets since 2002 and is an active investor and advisor in the industry. He has been retained as an advisor to Perennial Health Care, a $50 million elder care company, and holds a board seat at Magic Wheels, a start-up medical device company. Peter also has substantial experience evaluating and structuring domestic and international investments. Before entering the financial services sector, Peter managed new business development for NYNEX International and directed over $300 million of investment into new Asian and European businesses. These investments were up over 300% when Peter left NYNEX to join Morgan Stanley. He was also involved in the early stages of the cellular industry, where he developed internal business management systems. Fulcrum management believes it can draw upon Peter's strong analytical and investment experience to select the most attractive opportunities and management teams. The Firm expects to capitalize on Peter's solid banking and private equity relationships to facilitate investment exit strategies, as well as his proven ability to quickly cultivate relationships that effectively generate quality deal flow. Peter is a member of Social Investor Network, Net Impact and is an advisor to Ashoka's planned social investment bank, based in California.
MIKE PRESENTS TITLE: “Double bottom line, social venture capital, community development venture capital, blended value investing” are all labels that get thrown around to define the market. They all describe a manner of investing that looks beyond the financial and incorporates other social or environmental impacts… 1) Tie to CSR strategies that we’ve discussed in class…stick to core competency. Core competency of investment managers has always been very simple – strategies to make the most $$$ possible for investors 1a) Howevr, similar to what we’ve heard about consumers wanting to “shop” their value, there is also evidence that they would like to invest their values 1b)As we heard from Lloyd Kurtz, this movement has a long history in the public markets (1 in 10 dollar) 2a)However, our research indicates it is only just beginning to penetrate the private markets – of the $2.6 billion mentioned compare that to the $101 billion that was raised by the top 10 funds alone in 2006…clearly a long way to go. 2b) In our research and conversations, private equity has potential in this market – since the owners of private companies are investors, the shareholder/manager issue that faces many public companies and is the man basis for anti-CSR arguments does not have a basis. Owners=managers, which means they can operate their business according to what suits them. Sources: 1b) Nelson Capital website 2a)RISE report, Columbia University under management in the private equity double bottom line sector.
MIKE PRESENTS As investment managers have tried to respond to the desire for socially responsible investing, they’ve faced the challenge to have their social investment criteria/measures match up to the financial criteria and measures that have defined the industry 1a) historically – i.e. how well they track an index, the return on investment they provide 1b) If social criteria will be a major part of their investment thesis, then they need to have a similarly rigorous method to make investment decisions and track performance Thus was born the social impact assessment. Our research shows that this was originally born of the cost/benefit impact analysis that ws performed to receive federal funding as early as the 1970s/ In the double bottom line world, it is shocking the number of times we heard reference to “the holy grail” Soo….
MIKE PRESENTS We embarked upon our Quest…. We spoke to a number of contacts in the industry, and heard a variety of suggestions…what follows is a summary of what is being done for SIA in the industry…
MIKE PRESENTS TITLE: One of the most widely discussed is the Social return on Investment…this is where you assign values to social impact of your investment/company, and calculate….the NPV of social impact. Sub-title: Folks who participated in or are aware of the Global Social Venture Competition will be aware of this…it is a requirement for all entering teams to calculate their social impact based on this method Explain: use the bullets WHO?: Big proponents – SVT Consulting, REDF, some of the more foundation-type or non-profit folks…for the most part people who are not focused on achieving market rates of return Go through Pros/Cons Assumptions make the calcuation questionable
MIKE PRESENTS Sub-title: More of a relative scale, not focused on using $$$ to measure Explain: Who uses?: This is more something that the public SRI funds are interested in…reason is that they measure companies relative to their peers, and invest in companies that “outperform” on a social basis. Interesting insight from Lloyd Kurtz – even in the social field, it is unusual to find a Company that consistently outperforms the average for prolonged periods of time. (Starbucks leading edge, then falters…Walmart seen very negatively, then improves…Nike similarly) Pros/Cons
STEVEN PRESENTS Another option is to compare Fulcrum Funds to other funds Use both Stakeholder AND Social Return on Investment Has appeal but also has challenges
STEVEN PRESENTS Create a hybrid that incorporates all this information Company by company basis Show where a Fulcrum Funds company is relative to competitors
MIKE PRESENTS TITLE: As we concluded our research of the industry, there were several key insights that we felt were critical for Fulcrum to reflect on; 1: Identifying specific goals for social impact was critical in the private markets – it is not possible, credible or valuable to try to measure and quantify ALL things 2: Compare to what would have happened otherwise (with no entrants) or if another competitor operated in these markets 3: People had mixed reviews about the value of an absolute dollar or % value for social return…if only b/c an industry standard has not been developed and accepted by all parties
STEVEN PRESENTS Take what we learned and make it work for Fulcrum. $$$ value is important to them. Have to narrow the universe of impact.
MIKE PRESENTS 1) a-c: need to explain at a high level. 2 – For example, one of the key elements/differentiators that Fulcrum is considering for the “Community” impact is donating a portion of the carry earned by portfolio companies…a way for the Fund itself to give back. Other ideas that Steven and I had were potentially purchasing carbon offsets for airline trips undertaken for fund business…on the “product” perspective, perhaps holding a portion of the Fund available for investment to rural investors who might not typically qualify ****the Fund itself will also be measured on the multiple dimensions
STEVEN PRESENTS How do you track progress on broad goals? Look for specific indicators that can be measured Find things that have $$$ values or $$$ proxies The fire might be hard to see but the smoke is obvious. You can tell how big the fire is by how much smoke it is generating.
STEVEN PRESENTS Metrics that we believe capture the value created on the way to Fulcrum’s larger goals.
STEVEN PRESENTS Now that we have detailed metrics, want to apply them to businesses that look like Fulcrum investment opportunities Take the metrics for a test drive Using rural/underserved healthcare as the example for a deep dive on access and environmental metrics
MIKE TO PRESENT
STEVEN PRESENTS How to apply the metrics, using carbon reduction at a rural health clinic. Setting Carbon emission reduction value Using market for offsets as proxy for social value This is what people are willing to pay right now Problems- lots of disparity in price, unclear if this is a true market Early, speculative Marketing impacts price Doing the analysis Have to get information from company about what they are planning to do. Apply social value to their planned outcomes to find social return. Calculation Assuming that they are moving from a normal full sized car to a super efficent car Rural driving might not see results this good because it is highway driving Other options for adding social value here could be bio-fuels
MIKE PRESENTS Discuss that our work is a preliminary step – identifying the key areas to focus on is key, but need to continue to refine specific metrics
STEVEN PRESENTS There is huge potential and huge challenge in this area. This is the holy grail, that people are searching for Different ways to think about it All the ripples BUT what if you are trying to measure the ripples on the face of a wave? This is just a start Wave v. ripple- wave is both more powerful and much harder to understand
MIKE PRESENTS Phase 1: Interviews and research on what is being done by other firms Phase 2: With better understanding of what competitors are doing, figure out what makes the most sense for Fulcrum Phase 3, which is ongoing: Analyze and apply the results of our work to a current Fulcrum portfolio company to understand their impact
Fulcrum Funds, LLC Social Impact Assessment Peter Kennedy, Founding Partner Final Presentation Steven Aronowitz, JD ‘08 Michael Pearce, MBA ‘08 May 2, 2007
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
Sara Olson, SVT Group “ You have to measure what is important to your client, any metric must have meaning for them.” Brian Dunn, Aquillian Investments “ We have to choose between solar panel companies focused on fair labor standards or focused on toxics recycling. Both are important goals but which matters most to us now?”