Edwards Lifesciences recently unveiled a $100 million social impact fund from existing investments to create a new portfolio aimed at advancing racial equity in underserved communities.
The medtech firm, based in Irvine, California, decided to go this route after the social unrest of 2020, says CFO Scott Ullem. He says the company was looking to use the cash on its balance sheet more effectively than just applying it to more traditional investments. “How can we align our credo with a clear societal need? That was the genesis of this,” Ullem said in an interview with Health Evolution.
Edwards has committed $70 million of the $100 million to three specific investments:
– PROPEL (Providing Real Opportunities for Progress by Edwards Lifesciences) – A fund focused on commercial development in underserved and racially diverse communities.
– Deposits in minority-owned and diverse-led financial institutions.
– Targeted capital for Hope Credit Union (HOPE), a financial institution in the Deep South, owned by women and Black residents. HOPE provides access to financial services for small businesses, housing and community infrastructure.
Ullem talked with us about the goals for this social impact fund, challenges and opportunities and more.
What made these programs stand out for initial investments?
We spent a lot of time and went into deep analysis over different investment alternatives that would align with our objective to advance racial equity. It’s not like you can go out and buy a particular bond or invest in a security to meet that objective. We had to custom structure this portfolio of investments that’s diversified across different areas to help us invest and create capital availability for businesses that have not historically had that kind of access. So far, we committed $70 million out of the $100 million earmarked for this program, we’ve invested in these different areas. One is PROPEL, which is focused on commercial development in underserved and racially diverse communities. The other is making deposits into minority-led banks, who then can lend those deposits to interested borrowers. And the third was a special deposit into HOPE, a credit union in the Deep South. That was the approach we took to putting together a portfolio of diverse investments rather than just a single commitment.
Our objective was to increase the availability of capital to communities and borrowers who have historically not had easy access to capital. We looked to see if there was a corresponding need where our interests align. The first one we identified was investing through deposits in minority depository institutions (MDIs). These are banks that historically serve underserved communities. If you go to a major city in this country, you go into some neighborhoods, and they don’t have Citibank, Chase or Bank of America. You’ll find banks you’ve never heard of before. They are these MDIs. They don’t attract the same kind of deposits, which we are trying to help solve. That was the first shot on goal we took.
The other two fell under the umbrella of PROPEL , they are longer-term investments. They provide debt financing directly, for instance, to real estate investment efforts. Maybe it’s a real estate developer who is putting up a multi-tenant complex with a primary care physician’s office, an urgent care clinic and a drug store. These funds have not been deployed, but we partnered with the Royal Bank of Canada looking for projects that meet those objectives.
The second one under PROPEL was a similar type of long-term investments in underserved communities. In this case, Edwards will participate in partnership with banks in what’s called the New Markets Tax Credit Program (NMTC). This is a Congressionally enacted initiative that incentivizes investors like Edwards to fund economic development projects in exchange for tax credits. We don’t get the money back. But we get tax deductions over seven years.
Is there a non-traditional way to measure the ROI on these investments?
We are trying to find the intersection of investments that will provide a return to Edwards but also create a multiplier effect of making capital more available to new businesses and even individuals buying a new home. Each of these investments have a different rate of return. The deposits in the MDIs are expecting similar yields that we get into deposits in other big banks. There will be some discounts to those rates, but there’s not a huge rate of return right now anyway because interest rates are so low. It’s a comparable rate of return. For the longer-term investments, there’s more uncertainty about the returns. It’s something we will be tracking and monitoring over time. We’ll adjust over time if we have to.
What are the biggest challenges and opportunities with this social impact fund?
There are several challenges. One is making sure we are investing in projects/developments/economic transactions that advance our objective. We are really trying to improve racial equity and availability of capital. We are targeting investments to ensure we help achieve those goals. Those aren’t just available. We have to seek them out. RBC will be working with developers to ensure our investments are where we want them to be. That’s the biggest challenge.
There are big opportunities. The direct deposits from Edwards will help banks provide loans to developers or loans to small businesses. They’ll directly benefit. What’s even more exciting is the deposits will have a multiplier effect. If we invest a dollar in a bank, it could turn into 2.5 dollars of investment capital that they can put in the hands of borrowers and small business owners. That’s a lesson from JP Morgan. It’s not just the initial funds, but it’s the multiplier effect.
There is a third opportunity we haven’t advanced yet, but we are hoping we can. We want to attract other companies to do something similar. In discussions I have with other CFOs, there’s a high awareness of the inequities that exist in availability of capital. There are a lot of companies sitting in net cash positions, where they have the funds to invest in other vehicles. We’d like to invite other companies to participate in similar types of programs. We can share learnings in how we structure this and help streamline learning to the point where other companies want to pursue these investments.
