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March 18, 2010 CONFIDENTIAL © 2006-2010 HIP Investor Inc. 1
Special Sneak
Preview:
Coming
April 2010
(John Wiley & Sons)
HIP = Human Impact + Profit
HIP
Investing
Solve
Human
Needs
(Do Good)
Maximize
Profits
(Make
Money)
CONFIDENTIAL © 2006-20...
3
3 in 4 Employees Want to “Do Good”
and Looking to Employers for Purpose
“Commitment to social issues” is a major factor ...
4
Customers and Investors
Want to Buy and Invest HIP
INVESTORS
66% see “doing good”
as positive indicator
19% REFUSE to in...
5
But CFOs, Investors & Corporate
Managers Unclear on $ Value
McKinsey surveyed 238 CFOs+investors
& 127 CSR leaders:
• 85...
6
But CFOs, Investors & Corporate
Managers Unclear on $ Value
McKinsey surveyed 238 CFOs+investors
& 127 CSR leaders:
• An...
HIP’s 5 Dimensions of Measurable Impact
Lead to Sustainable, Profitable Growth
• Physical Health
• Mental AgilityHealth
• ...
Human Impact + Profit (HIP):
The New Fundamentals of Investing
• Profiteer: The Traditional Way – Solely focuses on the ca...
The HIP Approach Outperforms Both
the Profiteers and Socially Responsible Investors
$60,000
$70,000
$80,000
$90,000
$100,0...
10
Always Ask: “HOW HIP IS IT?”
• What human problem
does this solve?
• How do you design for both
Human Impact + Profit?
...
The HIP Methodology Process
Quant.
Impact
HIP
Dimensions
1
Research
2
Quanti-
fication
3
Inter-
view
4
Scor-
ing
5
Weighti...
First, We Evaluate How Value is Created
Company Categories HIP Revenue share
GE EcoMagination 80 products, $17 Billion
Equ...
13
1) Health: Clean Doesn’t Smell
Clorox GreenWorks + Sierra Club
Solves Human Problem:
* Non-allergenic (health)
* Afford...
14
1) Health: Maximizing Life
GE’s Logiqbook XP Ultrasound
Customer Affordability
$16,000 retail price
Lease for $339 per ...
15
2) Wealth: Increasing access to capital
Wal-Mart Debit Card
• Unbanked = 10% of US
families; 10 MM
households
– Frequen...
Next, We Run the Numbers on Human Impact
HIP
Dimension
Sample HIP metrics How It Drives Profit
Health Customer and Employe...
17
3) Earth: Saving Money + Carbon
in Green Data Centers (SUN)
• Sun optimized its data centers in Silicon
Valley
– Enable...
18
1&3) Human Impact  Profit
Lower
Carbon
= $$$
Human
Impact
= $$$
19
4) Equality: More Women on Board
= Outperformance (ROE, ROS, ROIC)
20
5) Trust: Transparency of Supplier
Sourcing and the Entire Carbon Chain
Solves Human Problem:
• 100% traceable gold and...
Strong Decision Systems Embed Sustainability
Mgmt Systems Leading HIP examples Leading Firms
Vision 50% by 2015
Zero by 20...
All Three Categories Are Integrated Together
HIP Category Portfolio Weights
(total 100%)
Hypothetical
HIP Results
Overall ...
HIP Weights Are Based on Impact,
Not Just Market Value
S&P
Rank
S&P 100 Market
Value
S&P
Weight
1 Exxon Mobil $323B 5.14%
...
Performance: A HIP100 Approach
Exceeds the S&P 100 by 4% (400bps) Annually
CONFIDENTIAL © 2006-2010 HIP Investor Inc. 24
Performance: A HIP100 Approach
Exceeds the S&P 100 in Multiple Periods
CONFIDENTIAL © 2006-2010 HIP Investor Inc. 25
In the Last Half of 2009, HIP 100 Outperformed
Since HIP 100’s “live” inception date of 7/30/09
*Actual net-of-fees result...
HIP’s “Bottom Up” Sector Weights Differ
From S&P’s Market Weights
16.1%
22.4%
15.0%
14.3%
14.2%
8.8%
12.6% 12.2%
12.4% 13....
HIP 100 Explained:
The Top 10 of the 100
CONFIDENTIAL © 2006-2010 HIP Investor Inc. 28
HIP’s Indexes Seek Diversification, Alpha
and Positive Risk-Adjusted Returns
CONFIDENTIAL © 2006-2010 HIP Investor Inc. 29
All Types of Investors
Can Benefit from a HIP Portfolio
HIP
Portfolio
Individual
Investors
Family
Offices
Endowments
Retir...
New Investments
Across Asset Classes
MFE’s More HIP Portfolio
Cash
All Cash is
Invested for
Human
Impact +
Profit
Fixed in...
HIP Can Apply Across Asset Classes
HIP Portfolio
Cash
Community
Bank of Bay
Wainwright
New
Resources
Bank
Fixed
income
Mun...
A More HIP Portfolio to
Yields More Human Impact + Profit
• The new fundamentals of investing shift how businesses create
...
A Fundamentally New World
for Investors, Business and Citizens
• Investing: Transform how capital markets –
from mutual fu...
About HIP Investor
• HIP is a registered investment advisor, based in California
• Our multi-disciplinary team combines ex...
Disclosure and Assumptions
CONFIDENTIAL © 2006-2010 HIP Investor Inc. 36
CONFIDENTIAL © 2006-2010 HIP Investor Inc. 37
Special Sneak
Preview:
Coming
April 2010
(John Wiley & Sons)
Contact Us to Become More HIP
R. Paul Herman CEO + Founder +1 415 902 7741 Paul@HIPinvestor.com
Joan Varrone COO + Exec Vi...
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The HIP Investor: Making a better profit by building a better world

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Net Impact Talk 18 Mar 2010

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The HIP Investor: Making a better profit by building a better world

  1. 1. March 18, 2010 CONFIDENTIAL © 2006-2010 HIP Investor Inc. 1 Special Sneak Preview: Coming April 2010 (John Wiley & Sons)
  2. 2. HIP = Human Impact + Profit HIP Investing Solve Human Needs (Do Good) Maximize Profits (Make Money) CONFIDENTIAL © 2006-2010 HIP Investor Inc. 2
  3. 3. 3 3 in 4 Employees Want to “Do Good” and Looking to Employers for Purpose “Commitment to social issues” is a major factor for Americans deciding… 52% 40% 48% +20% +26% +29% 0% 25% 50% 75% 100% Wish my employer would do more for social causes How I invest Where I work 2001/04 survey 2007 survey 77% 66% 72% Source: ConeCause survey of 1096 consumers in 2001, 2004 and 2007
  4. 4. 4 Customers and Investors Want to Buy and Invest HIP INVESTORS 66% see “doing good” as positive indicator 19% REFUSE to invest if firms not “doing good” CUSTOMERS 65% want to “do good” by BUYING 49% DON’T buy if not good 38% tell a friend Source: Cone survey of 4000+ consumers, 2007-2008
  5. 5. 5 But CFOs, Investors & Corporate Managers Unclear on $ Value McKinsey surveyed 238 CFOs+investors & 127 CSR leaders: • 85% see long-term financial value from eco- initiatives… • BUT, 45% of CFOs and 51% of investors see them as less important to financial value during this crisis!
  6. 6. 6 But CFOs, Investors & Corporate Managers Unclear on $ Value McKinsey surveyed 238 CFOs+investors & 127 CSR leaders: • And, 53% of CSR professionals “don’t know” the shareholder value of eco-initiatives. • Finally, 14% of CSR managers prioritize charitable giving as more important than revenue growth, at 12% (!!) Brand enhancement, talent management and society’s expectations are quoted as the top 3 ways that ESG programs deliver value
  7. 7. HIP’s 5 Dimensions of Measurable Impact Lead to Sustainable, Profitable Growth • Physical Health • Mental AgilityHealth • Income Growth • Asset AccumulationWealth • Carbon Neutrality • Reusable ProductsEarth • Gender Balance • Ethnic DiversityEquality • Transparent & Open • Credible & EthicalTrust HIP companies innovate to answer five human needs: Innovative Products + Services Inspired People + Teamwork Increased Profits + Returns Improved Planet + Society Resulting in sustainable, profitable growth for all stakeholders: CONFIDENTIAL © 2006-2010 HIP Investor Inc. 7
  8. 8. Human Impact + Profit (HIP): The New Fundamentals of Investing • Profiteer: The Traditional Way – Solely focuses on the capitalist approach – chasing short-term financial gains risking environmental and economic stability • Do Gooder: The Exclusionary Way – Follows a socially responsible philosophy – excluding “bad” companies from portfolio – leading to lower long-term returns • HIP Investor: The Breakthrough Way –Integrates “sustainability” into the fundamentals, transforming a portfolio; demonstrates that leading companies that integrate sustainability produce higher profits and greater appreciation • This HIP approach seeks two goals for your portfolio • Higher financial returns on a risk adjusted basis • Increased positive human, social and environmental impact CONFIDENTIAL © 2006-2010 HIP Investor Inc. 8
  9. 9. The HIP Approach Outperforms Both the Profiteers and Socially Responsible Investors $60,000 $70,000 $80,000 $90,000 $100,000 $110,000 $120,000 $130,000 $140,000 $150,000 $160,000 Initial Aug-04 Oct-04 Dec-04 Feb-05 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 5 Year Net of HIP Fee Returns Net of FeesHIP 100 Net of FeesS&P 100 Net of Fees3 Month Net of FeesDOMINI 400 CONFIDENTIAL © 2006-2010 HIP Investor Inc. 9
  10. 10. 10 Always Ask: “HOW HIP IS IT?” • What human problem does this solve? • How do you design for both Human Impact + Profit? • What management practices are in place to be HIP?
  11. 11. The HIP Methodology Process Quant. Impact HIP Dimensions 1 Research 2 Quanti- fication 3 Inter- view 4 Scor- ing 5 Weighting • Analytics based on 30 quantifiable metrics • New fundamentals drive weighting of portfolio • Same universe as S&P benchmarks CONFIDENTIAL © 2006-2010 HIP Investor Inc. 11
  12. 12. First, We Evaluate How Value is Created Company Categories HIP Revenue share GE EcoMagination 80 products, $17 Billion Equals about 10% global revenue in 2008 Pepsi Co Good for You Better for You Fun for You 30% Good and Better for You e.g. Tropicana Orange Juice, Quaker Oats Campbell’s Soup Lower sodium (less than 460mg) Lessened sodium High sodium per serving (780mg) Goal for FY 2010 is: 20% …30% …50% CONFIDENTIAL © 2006-2010 HIP Investor Inc. 12
  13. 13. 13 1) Health: Clean Doesn’t Smell Clorox GreenWorks + Sierra Club Solves Human Problem: * Non-allergenic (health) * Affordable, small premium (wealth) * Eco-stable cleaner (earth) Delivers Environmental Benefit: * Meets EPA “design for environment” (DfE) standards * Biodegradable = 100% renewable Profitable for Investors: + 42% category market share + $200 million annual sales + Doubled the category size since Dec. 2007 launch
  14. 14. 14 1) Health: Maximizing Life GE’s Logiqbook XP Ultrasound Customer Affordability $16,000 retail price Lease for $339 per month Employee Satisfaction Solving a Human Problem… Investor Delight …for Profit + New market, high-growth, + lower manufacturing cost, + increased margins
  15. 15. 15 2) Wealth: Increasing access to capital Wal-Mart Debit Card • Unbanked = 10% of US families; 10 MM households – Frequently pay high fees relative to frequent transactions • New services increase wealth for customers: – Lower check cashing fees – Easier shopping at WMT, car rentals, hotels – Trusted remittances to family abroad – Access to ShareBuilder investments
  16. 16. Next, We Run the Numbers on Human Impact HIP Dimension Sample HIP metrics How It Drives Profit Health Customer and Employee Satisfaction Access to health care and wellness Higher revenue, more referrals Increased retention, and focus Wealth Total compensation matching CEO pay to worker pay Boosted loyalty, longer-term staff More to invest in the business Earth Greenhouse Gas Emissions (GHG) Waste reduction and re-use Reduced fuel intensity, value of credits Lower costs, lessened risk Equality Board diversity Supplier diversity More risk-conscious decisions Stable supply base ensures deliveries Trust Legal exposure Certifications Reduced liabilities today & future Systematic process keeps costs lower CONFIDENTIAL © 2006-2010 HIP Investor Inc. 16
  17. 17. 17 3) Earth: Saving Money + Carbon in Green Data Centers (SUN) • Sun optimized its data centers in Silicon Valley – Enabled “virtualization” – Arranged for energy efficiency – Implemented energy sensors – Reduced 2,177 servers to 1,240 • Saving both operating + capital $$$ – Avoided $9.3MM in new construction – Retrofit payback in 3 years or less – $1mm utility incentive payment • Positive impact on environment satisfying growing customer need – Eliminate 4100 carbon tons yearly http://blogs.business2.com/greenwombat/2007/08/sun-greens-the-.html
  18. 18. 18 1&3) Human Impact  Profit Lower Carbon = $$$ Human Impact = $$$
  19. 19. 19 4) Equality: More Women on Board = Outperformance (ROE, ROS, ROIC)
  20. 20. 20 5) Trust: Transparency of Supplier Sourcing and the Entire Carbon Chain Solves Human Problem: • 100% traceable gold and silver • Personalized map of your purchase at: www.LoveEarthInfo.com Delivers Environmental Benefit: • Supplier scorecard also tracks CO2e (carbon) associated with mining, refining, transport, crafting, delivery • Target: Zero waste; minimize water Profitable for Investors: + Positive growth of product line in declining category + Targets 10% of jewelry line by 2010
  21. 21. Strong Decision Systems Embed Sustainability Mgmt Systems Leading HIP examples Leading Firms Vision 50% by 2015 Zero by 2020 AMD Interface Measures 10-point balanced scorecard PG&E, H-P, McDonald’s Financials 10% or more of revenue $400mm cost savings +2% more; 40% less energy Solar tax credits GE, Pepsi, Campbell’s Interface Liberty Property Trust Walgreens Accountability Board committees; Performance targets for VPs, managers, staff GE, Chevron, Intel Corp., Herman Miller Decision Making Approval / integration of new product design United Technologies Sun Microsystems CONFIDENTIAL © 2006-2010 HIP Investor Inc. 21
  22. 22. All Three Categories Are Integrated Together HIP Category Portfolio Weights (total 100%) Hypothetical HIP Results Overall HIP Score Product 15% x (multiplied by) 10% = 1.5% Human Impact 60% x 50% = 30% Management Practices 25% x (20 of 25, or) 80% = 20% Overall HIP score = 51.5% CONFIDENTIAL © 2006-2010 HIP Investor Inc. 22
  23. 23. HIP Weights Are Based on Impact, Not Just Market Value S&P Rank S&P 100 Market Value S&P Weight 1 Exxon Mobil $323B 5.14% 2 Microsoft $235B 3.74% 3 Apple $189B 3.01% 5 Procter & Gamble $177B 2.81% 9 GE $161B 2.56% 19 Intel $116B 1.80% 23 Philip Morris $95B 1.40% 100 Lockheed Martin $24B 0.38% HIP Rank S&P 100 HIP Score HIP Weight 1 Procter & Gamble 71.0 1.47% 2 GE 70.8 1.46% 3 Intel 70.0 1.45% 24 Microsoft 57.2 1.18% 41 Lockheed Martin 53.2 1.10% 56 Exxon Mobil 48.4 1.00% 68 Apple 42.8 0.88% 100 Philip Morris 15.0 0.31% CONFIDENTIAL © 2006-2010 HIP Investor Inc. 23 HIP 100
  24. 24. Performance: A HIP100 Approach Exceeds the S&P 100 by 4% (400bps) Annually CONFIDENTIAL © 2006-2010 HIP Investor Inc. 24
  25. 25. Performance: A HIP100 Approach Exceeds the S&P 100 in Multiple Periods CONFIDENTIAL © 2006-2010 HIP Investor Inc. 25
  26. 26. In the Last Half of 2009, HIP 100 Outperformed Since HIP 100’s “live” inception date of 7/30/09 *Actual net-of-fees results of the HIP 100 Portfolio and the S&P 100 index. Percentages include reinvested dividends and stock splits, and deduct fees and trading costs based on a $100,000 beginning balance. Past results are not indicative of future performance. Index Net Results As Of HIP 100 +14.23% 12/31/09 S&P 100 +12.23% 12/31/09 CONFIDENTIAL © 2006-2010 HIP Investor Inc. 26
  27. 27. HIP’s “Bottom Up” Sector Weights Differ From S&P’s Market Weights 16.1% 22.4% 15.0% 14.3% 14.2% 8.8% 12.6% 12.2% 12.4% 13.7% 9.3% 6.7% 8.9% 13.8% 4.8% 1.8% 3.6% 1.6% 3.1% 4.7% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% HIP100 S&P100 Telecom Utilities Materials Energy Consumer Discr'y Health Care Financials Industrials Consumer Staples Info Tech HIP100 v S&P100 Sector Weights CONFIDENTIAL © 2006-2010 HIP Investor Inc. 27
  28. 28. HIP 100 Explained: The Top 10 of the 100 CONFIDENTIAL © 2006-2010 HIP Investor Inc. 28
  29. 29. HIP’s Indexes Seek Diversification, Alpha and Positive Risk-Adjusted Returns CONFIDENTIAL © 2006-2010 HIP Investor Inc. 29
  30. 30. All Types of Investors Can Benefit from a HIP Portfolio HIP Portfolio Individual Investors Family Offices Endowments Retirement Plans Pensions Corporate Treasuries Foundations CONFIDENTIAL © 2006-2010 HIP Investor Inc. 30
  31. 31. New Investments Across Asset Classes MFE’s More HIP Portfolio Cash All Cash is Invested for Human Impact + Profit Fixed income Corporate bond index (become the new JENI) Income Generating Appreciation Real Estate Investment Trust (a HIP REIT) Equities HIP Indexes that cover all sectors and sizes International and Emerging Emerging markets index (the new BRIC) Venture Capital and Private Equity VC and PE funds that deliver impact Alternatives Commodity contracts that are fair trade, organic, and sustainable CONFIDENTIAL © 2006-2010 HIP Investor Inc. 31 A
  32. 32. HIP Can Apply Across Asset Classes HIP Portfolio Cash Community Bank of Bay Wainwright New Resources Bank Fixed income Muni Bonds Domini Corp. Bond Index Microfinance RSF Mezz. Income Generating Appreciation Preferred equities (dividends) REITs Equities HIP in US HIP in EUR Impact strategies (Earth 2x) International and Emerging Portfolio 21 Cleantech indexes (e.g. PZD) Venture Capital and Private Equity Renewal2 Sartori Patient Capital Alternatives Fair Trade Coffee Organic orange juice CONFIDENTIAL © 2006-2010 HIP Investor Inc. 32
  33. 33. A More HIP Portfolio to Yields More Human Impact + Profit • The new fundamentals of investing shift how businesses create value – by solving human needs for profit • A HIP Portfolio can generate higher risk-adjusted returns, generating positive alpha – and impact • Positive financial risk-adjusted returns attracts more traditional and SRI investors to this path • Consequently, a HIP Portfolio builds a better world for investors, entrepreneurs and citizens CONFIDENTIAL © 2006-2010 HIP Investor Inc. 33
  34. 34. A Fundamentally New World for Investors, Business and Citizens • Investing: Transform how capital markets – from mutual funds and ETFs to venture capital – serve society • Business: Solving human needs for profit is the path to industry leadership • Citizens: Open sourcing of investing enables “wisdom of the crowd” and global impact CONFIDENTIAL © 2006-2010 HIP Investor Inc. 34
  35. 35. About HIP Investor • HIP is a registered investment advisor, based in California • Our multi-disciplinary team combines expertise in finance and sustainability, including microfinance and impact investing • The HIP 100 Index has outperformed the S&P 100 by 4% on average annually over the past 5 years* • Author of new investment primer, “THE HIP INVESTOR: Make Bigger Profits by Building a Better World” to be published by John Wiley and Sons, April 2010 * Since July 30th, 2009, the HIP 100 Portfolio has outperformed the standard S&P benchmark by 2% for less than a half-year . The HIP 100 has also outperformed the S&P benchmark in a five- year backtested model (please see Disclosure and Assumptions at the back of the document). CONFIDENTIAL © 2006-2010 HIP Investor Inc. 35
  36. 36. Disclosure and Assumptions CONFIDENTIAL © 2006-2010 HIP Investor Inc. 36
  37. 37. CONFIDENTIAL © 2006-2010 HIP Investor Inc. 37 Special Sneak Preview: Coming April 2010 (John Wiley & Sons)
  38. 38. Contact Us to Become More HIP R. Paul Herman CEO + Founder +1 415 902 7741 Paul@HIPinvestor.com Joan Varrone COO + Exec Vice President +1 415 305 6329 Joan@HIPinvestor.com Eric Steinhofer Senior Vice President +1 415 518 2746 Eric@HIPinvestor.com www.HIPinvestor.com CONFIDENTIAL © 2006-2010 HIP Investor Inc. 38

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