Our Investment Model

INTRODUCTION

The Connor Group is a real estate investment firm that owns and operates apartment communities. In addition to our basic business, we’ve also been involved with a number of different causes throughout the years. But, frankly, for a long time we struggled to give our efforts a name.

Was what we were doing “philanthropy?” No, that’s too pretentious. “Charity?” Too condescending. A “trust?” Too hands-off. For a number of years we operated as a “foundation,” until we decided that was too generic. 

We wanted to develop our own disciplined philosophy. Then we wanted to use that philosophy to find a select number of really good causes and help develop them into really great programs. How would we accomplish that? Certainly not just by writing checks, although that’s a significant part of the equation. More importantly, we wanted to utilize the knowledge, skills and relationships we’ve developed in more than 25 years as a high-performance business. 

In the end, we decided the best description for our approach was “non-profit activist investing.” We landed on the name “Connor Group Kids & Community Partners.”

And the investment philosophy and process we developed is detailed in the following pages.

Investment philosophy 

Technically, our investment philosophy was formalized during a year-long strategic planning process that took place in 2016. In reality, it’s mostly a biproduct of our company’s culture and the philosophies we’ve developed as for-profit investors. 

We didn’t set out to design a complementary set of guidelines, but they certainly align with our business. They are as follows. 

  • We invest in people, plans and processes. In that order. People in leadership positions always will be the difference between long- term success and failure. 
  • We’re going to be narrow and deep. We don’t want to write checks to hundreds of organizations. We’d rather be all-in with a much smaller portfolio of high-impact programs. And we’ll typically vet 100 programs to find one in which we’ll ultimately invest. 
  • We invest in outcomes, not outputs. (For example: The number of teens who complete a career-training course is an output. The number of teens who secure sustainable employment because of that course is an outcome.) 
  • We want to leverage our non-profit financial investments – whenever possible – with our time, talent, expertise and relationships. 
  • We want to invest in programs that are nearing an inflection point in their impact/growth trajectory. 
  • We believe one can measure and monetize anything. And we want to invest in programs that have a high return on investment for the people we want to serve (typically disadvantaged kids).

Evaluation process 

After initially vetting potential programs, we perform a return on investment calculation. As indicated above, this calculation is an attempt to predict how much value a program brings to the population we’re trying to help. Oftentimes non-profit funders will talk about how much a program saves taxpayers or “society.” 

That’s not our concern. Typically, we’re investing in programs that help disadvantaged kids. So these calculations are based on how much value a particular program brings to disadvantaged kids in terms of lifetime health and lifetime income.

This process, called Relentless Monetization (RM), was developed by a New York foundation called Robin Hood. After seeing the philosophy featured on 60 Minutes, we spent months learning from Robin Hood associates and tweaking the model to serve our purposes.

In the end, we developed a calculator that featured 33 outcomes that we believe – based on research – pull kids out of generational poverty. Some of the outcomes are rooted in education (college graduation, kindergarten readiness, etc.), some are rooted in healthcare (avoiding childhood obesity, access to mental health services, etc.). Some focus on job-training, some focus on avoiding the judicial system. 

Each outcome is assigned a dollar amount based on the net present value of the additional income and/or quality adjusted life years it will produce. For example, we believe a high school diploma is worth $230,874 in net present value. People who graduate high school make more money over the course of their careers than their peers who don’t. They live longer and healthier lives. Both are monetized in the net present value. We also believe that avoiding a juvenile correction facility is worth $72,980. 

So let’s assume we’re evaluating a program that aims to produce these two outcomes. And let’s assume – based on data – that every year 100 of its participants graduate high school and avoid juvenile detention. How should we determine the value of the program? Seems like a simple solution, right? Just multiply the value of the outcomes by the number of those outcomes the program is producing, then add them together (ex: [$230,874 x 100] + [$72,980 x 100]). Right?

Not so fast. 

Before making any calculations, we have to make another set of assumptions. We have to determine how many of the participants would have attained these outcomes if this program never existed. That number is called the “counterfactual.” We can find the counterfactual by researching data. We can find it through talking to participants and their families. We also have to use our gut at times. This process is part art and part science. After we find the counterfactual, we subtract it from the number of participants attaining that outcome, then multiply it by the value of the outcome. For our example, let’s assume that both counterfactuals are 50. 

Outcome Participant attainment Counterfactual Net Net present value TOTAL

 

So when we add the total value of all the outcomes, we see the program is bringing roughly $15.2 million in value to the population we’re trying to serve. Is that good? 

It depends. Remember, this is a return on investment calculation. We can’t judge the return if we don’t know the investment. The total value is only the numerator. We need the denominator, which for our purposes is the program’s annual operating expense. Let’s say in this instance the program spends $1 million to create these outcomes. That means our final RM number is 15.2 ($15.2 million ÷ $1 million). Said differently, for every dollar we spend, we believe disadvantaged kids are getting $15.20 in value. 

Is that good? 

Again, it depends. It depends on our other investment options. The model is merely a tool that helps compare potential investments. It helps tell us where we should invest more and where we should invest less. 

But it’s not the only tool we use. 

Once the RM is completed, we use it as part of a larger weighting system that takes into account factors like leadership, location, risk, potential investment amount, etc. Ultimately, that system helps us determine which investments to make, how much we should invest and how hands-on we’ll be with the program. 

It’s actually incredibly similar to the proprietary system we use to evaluate potential real estate investments. That system has served us incredibly well for nearly three decades, but we still continue to evaluate and improve it. We expect the non-profit model to evolve similarly.