January 2025 Update
Donors and Alumni,
Happy New Year!
Status on the 2024-2025 Giving Cycle
The student team enjoys time together ahead of final exams in December.
In November and December, the student team presented ten mid-level presentations to the Giving Committee (5 in the recidivism vertical, 4 in environment, and 1 in economic mobility), drawn from the 70+ unique charities reviewed throughout the Fall semester. In parallel, the team has been working to develop a foundational understanding of the US homelessness landscape in order to identify the weakest points of the housing delivery model. We expect to share our findings in a few months, and this research work will underpin the Spring diligence within the broader economic mobility vertical.
For a glimpse into what mid-level projects entail, click on the links below. Note that these are samples from Fall 2024 and do not necessarily represent charities that will move onto high-level diligence. Generally, students have 1-2 calls with management at the mid-level project stage and take a “first pass” at the social return on impact (SROI) calculation, which is then iterated on further with alumni if the project moves onto high-level diligence.
Common Ground Relief (environment) – restoration of wetland native plants along the coastline of Louisiana
The Fountain Fund (recidivism; see note below) – provides cash loans to formerly incarcerated individuals, with a focus on transportation access, employment, and entrepreneurship
Note that we have assessed a few loanmaking charities in the past, and with our review of The Fountain Fund, we decided to put aside these types of organizations from our scope for now. One of our Giving Committee members, Harvey Powers, has had multiple years of experience working with consumer loan making entities through his full-time job, and provided the following memorialized feedback:
First off, both the materials and the presentation of Fountain Fund were very well done. The team demonstrated a good understanding of and clearly communicated the charity's required activities and desired social outcomes. However, at this time, the charity isn't a good fit for a donation from USIT. The three biggest concerns are (a) inability to effectively track the outcomes by the charity today, (b) selection bias in the individuals who receive funds, and (c) a broad scope of "this charity lends money" concerns that are raised in detail below.
Various matters to consider for future diligence in the context of lending out money include: (i) CFPB regulations will apply; (ii) State lending laws will apply; (iii) Interest rates below the AFR rate can cause tax issues; (iv) A federal or state level lending charter is likely required, barring exemptions and/or exceptions under relevant law; (v) Fraud and money laundering become major concerns.
To understand the nature of a loan pool requires detailed reporting or transaction-level data to establish cohort-level performance. Even if the charity were willing and able to provide the data, it would be…rather a heavy lift analytically in the context of a type of activity that we are unlikely to support.
Giving Committee Member Reflections
To provide our community with a better sense of the internal goals, blocking, and tackling of the core working team, we will share reflections from Giving Committee members over the next few months. The first comes from Sunny Pamidimukkala, who graduated from UT Austin in 2018 and has served on the Giving Committee for the past three years.
***
I've had the opportunity to work with PIT since its inception, which coincided with the beginning of my career in public markets. After working at a couple of hedge funds in the past several years, I've been able to get exposure to a few different investment processes first-hand while viewing others from a distance.
Thorough due diligence (particularly where folks believe they have an "edge") is a clear cornerstone in any investment process. Bringing the same rigor of due diligence that exists in investing to philanthropy is not new – many organizations that offer grants, large giving institutions, and platforms like GiveWell have done the same for many years.
Despite Americans donating roughly $300B annually (with roughly $220B coming directly from households), less than 25% of donors read a charity's financials and less than one-third reach out to a charity's staff before making a donation. This would imply that the vast majority of giving is done without any research done into charity receiving the donation. In this context, I think PIT's mission is one that (hopefully) adds value over time by isolating charities that are executing effectively, generating high social-return-on-investment (SROI), and teaching students research processes that can translate to their careers.
Some common traits in successful investment processes are ones that many of you are familiar with:
A strong understanding of the fundamentals of a company/its industry
Diligence on the quality of the management team, their strategy, and their ability to execute
Thorough identification of risks to the investment thesis
An understanding of the existing opportunity set within the market (and the opportunity cost of misallocating capital)
The "catalyst path" to realization of the investment thesis and socialization of your view to the broader market
PIT has improved its understanding of charity fundamentals over the last few years. Years of work on recidivism and environmental charities seem to have built a stronger knowledge base in these fields, which gives me confidence we can continue to do this across other verticals. PIT's analysts also have done a good job over the years of identifying turning points in charities – something I would attribute to an understanding of catalysts (although the overarching concept seems less applicable to the charity world).
The remaining three factors – management quality, identification of risks, and understanding the opportunity set – are areas where PIT has room for improvement. Management quality seems to be just as important (if not more important) as it is for public investing, but it seems to be something that is currently underemphasized in our analysis. Given the size of the charities we work with and the significant execution risk tied up in many of their programs, this seems like an area of focus that needs more attention. This dovetails into identifying "real" risks to our donations – whether that be potential delays in implementation, loss of key personnel, etc. In our portfolio reviews, charities that lagged our expectations sometimes had risks that could have been identified with a little more work. As PIT scales, better risk analysis is key to realizing our SROI goals. While we often look at comparable charities within our current analysis, we seem to find charities with better metrics more often than you would expect as we continue to do more work within a particular vertical. We also need to do a better job of constantly measuring new charities against the existing portfolio, as deploying a larger donation to an existing portfolio charity might be the better decision in some cases.
Given the dramatic improvement in the quality of due diligence in the last few years at PIT, I have confidence in PIT's ability to continue its progress and refine its internal processes. I've really enjoyed my time working with students and alumni through PIT, and look forward to doing so for years to come.
If you have any questions about the above or anything else related to PIT, please feel free to reach out!
***
You can find more information about the team and work product at the USIT Foundation website. As always, feel free to contact us with suggestions or questions.
Best,
Angela Yang | Chairperson of the 2024-2025 Giving Committee