Truestone Impact Investment Management

Steve Beck – Senior Fund Advisor to Truestone Impact Investment Management Limited, Co-Founder & CEO of Spring Hill Equity Partners

Kasim Zafar, CFA – Senior Investment Analyst for Truestone ImpactInvestment Management Limited

17 October 2011

www.truestoneimpactinvestment.co.uk

Impact Investing – An emerging asset class?

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Important Information

Truestone Impact Investment Management Limited is authorised and regulated by the Financial Services

Authority (FRN 522413). Registered at the address below in England & Wales. Company Number

07217744.

Whilst all reasonable care has been taken in the preparation of this presentation no liability is accepted

under any circumstances by Truestone Impact Investment Management Limited for any loss or damage

occurring as a result of reliance on any statement, opinion, or any error or omission contained herein or in

relation to third party information supplied in this presentation. Any statement or opinion unless

otherwise stated should not be construed as independent research and reflects our understanding of

current or proposed legislation and regulation, which may change without notice. The content of this

document should not be regarded as specific advice in relation to the matters addressed.

Truestone Impact Investment Management Limited

Dixon House, 72- 75 Fenchurch Street, London EC3M 4BR

Tel: 0845 362 8424

www.truestoneimpactinvestment.co.uk

Truestone Impact Investment Management Limited is Regulated and Authorised by the Financial Services Authority

Impact Investing - Defined

1

Investments intended to generate

a positive social impact

beyond financial return

�Investments: debt or equity capital.

�Intentional about positive social and/or environmental impact (not just

negatively screened).

�Social/environmental impact is therefore measured.

�Financial return is expected.

Source: Impact Investments: An Emerging Asset Class, November 2010.

“ “

RM1

Slide 3

RM1 Ritchie MacDonald, 11/10/2011

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Investor Segments

Fin

an

cia

l Re

turn

Social Impact

0

0

High

High

Impact Floor

Financial

Floor

Financial-first

investors with an

impact floor

Impact-first

investors with

a financial

floor

Adapted from Solutions for Impact Investors: From Strategy to Implementation, RPA 2009.

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� 3rd quartile pupil achievement

� Universal “free” education is NOT free

($2-5/month)

� 30-50% of instruction time lost due to

teacher absenteeism & neglect

� No accountability to parents

� For-profit franchise schools

� Pupils outperforming peers by 50-

100%

� 22 schools; 2,700 students in first 24

months

� By 2018: 3,300 schools; 2.4m students;

36,000 teachers

� Investment valued at 2.5x in Dec 2010

Series B financing

Investing in Primary Education

State School System

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Investing in Mobile Information Access

“Google & Craigslist”

(Addis Ababa)

� Less than 5% Internet penetration

� Lost time

� Information asymmetry

� More than 400 million mobile phones

� Mobile phone is the computing

platform of choice

� Short-code SMS/MMS info portal

� Built and launched multiple applications:

e.g., health management, job

listing/search, news

� Poised to expand to new country markets

� Greater than 40% IRR

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CFA Definition

� Homogenous

� Mutually exclusive

� Diversifying

� Liquid

JP Morgan Definition

� Unique set of investment and risk

management skills

� Organisational structures established

to house this skill set

� Industry organisations, associations,

education

� Standardised metrics, benchmarks,

ratings

An Emerging Asset Class

Source: Impact Investments: An Emerging Asset Class, November 2010.

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Impact Investing – Growth Drivers

Source: Impact Investments: An Emerging Asset Class, November 2010.

� Values driven investors and consumers

� Growing inequity and environmental crisis

� Scarcity of aid and philanthropic capital; and questionable long term impact

� Money seeking diversification

� Talent pushing new careers

Up to $1 trillion will flow into Impact Investments in less than 10 years.

RESEARCHIDEA

GENERATION

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Impact Measurement – The IRIS Taxonomy

ORGANISATION DESCRIPTION

PRODUCT DESCRIPTION

FINANCIAL PERFORMANCE

OPERATIONAL IMPACT

PRODUCT IMPACT

Report

Information

Organizational

Information

Impact

Objectives

Product/

Service

Information

Target

Beneficiaries

Income

Statement

Balance Sheet

Cash Flow

Ratios,

Concepts, and Calculations

Governance &

Ownership

Social Policies

Environmental

Policies

Environmental

Performance

Employees’

Wages, Training & Assessment

Quantity &

Reach

Quality &

Performance

Client

Information

Supplier

Information

Distributor

Information

RESEARCHIDEA

GENERATION

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So we asked ourselves…

How do we turn this into an

investment process?

An Impact Investment Process…

Defining the Investment Universe

Asset Classes

Traditional Equity Funds (SRI, Ethical, Thematic)

Traditional Bond Funds (SRI, Ethical, Thematic)

‘Ethical’ Hedge Funds

Microfinance

Private Equity

Direct Holdings

Geographic Regions

Global

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Sector ClassificationsAn initial set of binary questions helps to construct the eligible universe. Does the investment:

MicrofinanceSocial

Property

Sustainable

AgricultureClean Energy

Sustainable

Forestry

Waste

ManagementCashSME FinanceHealthcare Education

Create jobs?

Provide a net positive social or environmental

benefit?

Provide access to finance?

Contributepositively to health and/or education?

Conserve land and/or water ecosystems?

Provide affordable housing or property?

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IMPACT INVESTMENT

SECTORS

Impact Research ProcessFinancial due diligence and social & environmental due diligence are carried out in

parallel

Job Creation

Borrowers (access to finance)

Health and Nutrition

Education

Housing

Net positive environmental benefit

Conservation of land and water ecosystems

Organisational structure

Market opportunity

Business model/ investment strategy

Investment process:

Idea generation, research, portfolio & risk

management

Company history and CV’s of key personnel

Corporate and financial governance

Return expectations, risk assessment

Socio-environmental objectives and controls

Legal due diligence and compliance

Substantiate modelling assumptions

Assess return expectations

Financial Due Diligence

Stage 1 – Fund Due Diligence

Stage 2 – Independent Financial Modelling

Customer & supplier management

Labour management policy

Fiscal responsibility

Environmental responsibility

Community development and social outreach

Performance standards (project finance)

Social and Environmental Due Diligence

Stage 1 – Quantitative Impact Evaluation

Stage 2 – Qualitative Impact Evaluation

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Microfinance

Social

Property

Sustainable

Agriculture

Clean Energy

Sustainable

Forestry

Waste

Management

SME Finance

Healthcare

Education

Total value of loan portfolio

Number of units built

Acres of land cultivated without deforestation

Number of megawatt hours produced

Hectares of forestry under management

Amount recycled (tonnes)

Total value of loan portfolio

Number of treatments or consultations

Number of students/ value of educational loans

KEEP IT SIMPLE

JOBS

Capital Committed

to Socio-

Environmental

Projects

Constructing an impact portfolio

Sector Allocation Geographic Allocation

Liquidity Management

In ConclusionLeadership The only way for impact investing to expand is for it to become

commercially attractive to investors. The aim must be to accomplish this

by delivering both a market rate return from impact investment products

and the creation of a net positive impact on the environment or for

underprivileged communities. We believe this will in turn increase the

flow of capital to address important social and/or environmental issues

Transparency To invest with fund managers and operators who demonstrate a net

positive impact and high levels of ethical principles and behaviour

Influence To influence impact results by working with fund managers to develop

policies and processes which create long-term benefits for our impact

universe

Result Increasing opportunities for people through access to employment,

finance, health, education, housing, and community services

Result Promoting a net positive benefit to the environment through investment

in natural resources, waste management, sustainable forestry and green

building

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Our contact details:

Telephone: 0845 362 8424 and ask for:

Tony Burke, Strategic Development Director

Address: Truestone Impact Investment Management Limited

Dixon House

72-75 Fenchurch Street

London

EC3M 4BR

Email: impactinvestment@truestone.co.uk

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Biography

Steve Beck

Steve Beck is Senior Fund Advisor to Truestone Impact Investment Management Limited & co-founder and CEO of SpringHill Equity

Partners. In addition to advising Truestone and leading SpringHill, Steve is a part-time senior advisor to the John Templeton

Foundation, conceiving and leading a research program on “franchising in frontier markets”. He has been published and quoted on

philanthropy, social investing & international development in the Harvard Business Review (September 2007), New York Times, Wall

Street Journal, Financial Times and CBS Evening News.

Prior to SpringHill, Steve served as Chief Executive Officer and Executive Vice President of Geneva Global, Inc. from 2002 to 2007.

Geneva Global is a philanthropic advisory firm providing independent research, advice, and grant management services to clients

focused on international development. Under Steve’s leadership the firm became a recognized leader in international philanthropy,

managing more than $80 million of grants in global health, human liberty, economic empowerment, education and conflict

recovery. Roughly half of these grants were directed to initiatives in sub-Sahara Africa. Steve joined Geneva Global in an executive

capacity in 2002, having consulted to the organization since its inception in 1999.

Prior to Geneva Global, Steve had twenty years experience in advising business leaders of global Fortune 200 companies on

strategy, organization and change management. As Managing Director of Gemini Consulting (a division of Cap Gemini) from 1996-

99, Steve led the company’s most profitable division with some 500 consultants and $200 million in revenues from nine offices in

Europe, Asia, and South Africa.

From 2000 to 2002 Steve was a Managing Director and Partner of Monitor Group, an international strategy consulting and

merchant banking firm. In addition to co-leading the Group’s business in Europe/Middle East/Africa, Steve served on the Board of

the Monitor Institute, which advises foundations and direct service organizations in the non-profit sector. Steve has thus advised

and/or managed business operations in Africa since 1992.

Steve was educated at Stanford University and the London School of Economics. He is married with three daughters, and despite his

Californian roots, lived in London from 1984 to 2002.

Paul Szkiler – Chief Executive Officer – 30 years’ experience as a financial adviser with a specialist knowledge

of social impact investments and philanthropy. Social and financial entrepreneur with interests in property,

motor dealerships, food manufactures, micro finance, education and charities (member of the Investment

Management Committee). Paul is also Chairman of Truestone Asset Management and is regularly sought out

by the press for comment on the subject of Impact Investing due to his personal and business experience in

this area

Tony Burke (MCISI) – Strategic Development Director – 30 years’ experience in asset management,

investment banking, proprietary trading and stock broking. Held positions as Partner, CEO, MD, and Director

of banks and stockbrokers for most of the last 25 years. Social investor in Nazareth college Togo (member of

the Investment Management Committee). Tony is also C.E.O . of Veracity Capital Partners Limited

Kasim Zafar, CFA – Senior Investment Analyst – CFA Charter holder, 9 years experience as a portfolio

manager and senior analyst in alternative investments, previously with the Sal Oppenheim Group. Extensive

experience in capital markets analysis, investment due diligence, portfolio and risk management, fund

structures & developing investment processes (member of Investment Management Committee)

Neil Sandy – Chief Operating Officer – 20 years’ experience in investment and asset management businesses

(Chair of the Investment Management Committee)

Stephen King – Compliance & Risk Manager – 22 years’ experience as a financial adviser, and a legal,

compliance and risk manager (member of the Investment Management Committee)

Ritchie Macdonald – Marketing Director – 25 years’ experience in marketing investment management and

advisory services

Key people at Truestone Impact Investment Management Limited

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About the Truestone Group

Founded in 1986, Truestone Asset Management is a discretionary wealth manager,

providing full service financial management to private clients. The firm operates

discretionary portfolio management and advisory services while developing a long-

term strategy and transparent relationship with each client.

TAM has £175 million of assets under management & advice and specialises in:

• Discretionary portfolio management

• Financial planning

• Socially motivated investing

• Employee benefits consultancy

• Private and commercial lending

Strong investment performance record

Ten years’ involvement in impact investing (for clients and as a company)

Highly developed global network of impact investment connections

2006 Truestone and the charity ‘A Call to Business’ establish a Micro-finance Fund in

Sierra Leone

2010 Establishes Truestone Impact Investment Management (TIIM) 20

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SpringHill Equity Partners is an impact investment manager providing capital and support to growing businesses

supplying basic goods and services to low income households in Africa. Every SpringHill investment targets both

financial returns and social benefit.

SpringHill principals have nineteen years’ first-hand experience of social investing in frontier markets.

Over this time, SpringHill has cultivated an extensive international origination and business strategy network that

can generate and qualify non-competitive deal flow.

SpringHill aims to cultivate a reputation and platform to promote a new asset class to fight poverty by fuelling

enterprise in underserved areas.