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Final PresentationSteven Aronowitz, JD ‘08Michael Pearce, MBA ‘08
May 2, 2007
Fulcrum Funds, LLCSocial Impact Assessment
Peter Kennedy, Founding Partner
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
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
You’re looking for the Holy Grail!!!
The Quest for the Holy Grail
SIA Industry Example
Calculate an absolute dollar value of social return on investment Select specific criteria to examine
Company by company basis (specific product impact)
General metrics (environment, job creation, average wage, etc.)
Investment decisions based on social projections Able to monitor social performance
versus projections
Advantages Provides absolute numerical value Removes ambiguity
Disadvantages Doesn’t have impact relative to similar
companies Many assumptions required to make
calculation
Magic Wheels - Social Return on Investment
Company-specific criteria Year 1 Year 2 Year 3 Year 4 Year 5Employment of disabled 100 120 144 173 207Improved Health 50 60 72 86 104ETC xx xx xx xx xxTOTAL $150 $180 $216 $259 $311
Standard criteria Year 1 Year 2 Year 3 Year 4 Year 5Environmental impact 25 25 25 25 25Jobs created 35 37 39 41 43Women/Minority owned 25 25 25 25 25ETC xx xx xx xx xx
$85 $87 $89 $91 $93
TOTAL Social Return $235 $267 $305 $350 $404
Based on multiple assumptions…
Social Return on Investment
SIA Industry Example
Analysis based on demonstrating relatively strong performance Criteria:
Standardize categories of comparison and apply to all companies within a sector
Maintain baseline industry standards to measure against
Advantages Standardizes for all portfolio companies Demonstrates best-in-class versus
individual performance
Disadvantages Does not have absolute dollar value Perhaps less relevant for projected
social impact
Perennial Healthcare Management - Stakeholder Quotient
10 20 30 40 50 60 70 80 90 100
ShareholdersPerennial Healthcare 80
Skilled Nursing Ind Avg 50
CustomersPerennial Healthcare 50
Skilled Nursing Ind Avg 70
EmployeesPerennial Healthcare 60
Skilled Nursing Ind Avg 30
SuppliersPerennial Healthcare 80
Skilled Nursing Ind Avg 50
CommunityPerennial Healthcare 90
Skilled Nursing Ind Avg 40
EnvironmentPerennial Healthcare 90
Skilled Nursing Ind Avg 80
OverallPerennial Healthcare 75
Skilled Nursing Ind Avg 53
Relative Analysis: Stakeholder Quotient
SIA Industry Example
Compare Fulcrum Funds to other similar funds Criteria:
Stakeholder Quotient and/or Social Return on Investment
Compare with healthcare sector funds
Advantages Apples to apples Speaks directly to investor choices
Disadvantages Difficult to get data from other funds Calculation may be arbitrary
0102030405060708090
Relative Value
FF X Y
Companies
SQSROI
Fund Scorecard
Possible Hybrid Model
To combine the advantages of both the absolute dollar value (SROI) and relative scorecard (SQ), calculate both
Company Magic Wheels
Hot Wheels Classic Wheels
SQ 90 74 62
SROI $1.2M $.9M $.6M
Fulcrum Funds
Average Medical Device Fund – Average of rest
of industry
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
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?”
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
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
Fulcrum Hypothetical Investment – Rural Healthcare Facility
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:
Type of Market Deaths/100k Rate
Large central 886.8 0.89%Large fringe 834.5 0.83%Small 887.6 0.89%With city >10k 923.1 0.92%Without city >10k 936.1 0.94%
Fulcrum market - now 140.415Fulcrum market - potential 125.175Difference - Lives Saved 15.24
Average local salary $37,564
Implied Total Value - Year 1 $572,475
Highest death rates for children and young adults
Highest mortality from ischemic heart disease and suicide
Higher percents of adults with chronic health conditions
Highest obesity rates
Lowest Physician rates
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 2.68Times social value of carbon per ton $7.75Equals social value per upgraded car per year $21Times number of cars in the fleet 15Total 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 $1,718,530University of Minnesota $5,000,000Center for Rural Health Hazard $10,000,000National 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 $$$ value SROI Value - Year 1
Product $572,475Environment $312Community $4,577,008Total Year 1 $5,149,795
Total Years 1-5 $25,748,974SROI 43%
Implementation Guidelines Focus on refining metrics
Envision a “desired state,” and work backward to find the statistics that will support that goal
Constantly monitor and update Unlike financial ROI, SIA will and should continue to evolve
Participate in industry consensus building SVT open source database of criteria being built
3rd party auditor to validate the calculated social impact Especially given the lack of transparency of the private
equity market Including direct conversations with portfolio companies
Powerful tool Absolute value Accurate cost benefit analysis Accountability
Difficult to implement Endlessly spreading ripples Separating impact from turbulence Non-dollar impacts
One step at a time Many people are working on the problem Creating database of metrics This is the start
Conclusion - Measuring Social Impact in $$$
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 - DetailContactsResources
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
Week1 2 3 4 5 6 7 8 9 10 11 12
Phase 1Analyze FSIA and research industry standards
- Interview industry thought leaders- Online guidelines/ published methodology
Phase 2Identify relevant criteria, formalize methodology and modify FSIA
- Focus on healthcare relevant categories- Use respected data sources to create metrics
Phase 3Apply refined FSIA to Fulcrum portfolio
- Perennial Healthcare Holdings SIA- Compare to original analysis
FSIA = Fulcrum Social Impact Assessment
Project Scope - Detail Stage 1: Research and analysis of Fulcrum’s
current evaluation system. Step by step breakdown of Fulcrum’s screening
and forecasting system. Comparison of Fulcrum to industry best
practices. Analyze specific key metrics that are used by
social investors industry-wide Analysis of purpose and effectiveness of
Fulcrum’s evaluation. Identify specific key metrics that are applicable to
Fulcrum’s industry focus (e.g. rural or low income healthcare, clean tech)
Stage2: Suggestions for improvements. 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
Stage 3: Application to an existing or potential Fulcrum investment Apply improved Fulcrum social evaluation to an
investment. Compare improved results with results from prior
Fulcrum evaluation system. Analyze the impact of improvements. Confirm applicability of evaluation to calculate a
total social impact value for Fulcrum’s fund
Additional: Consider organizations best suited to developing
and maintaining industry-wide social impact measures
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