Pre-SOCAP Labor Day event, September 2, 2013

Lauryn, Research0 Comments

The Research Behind the Bay Area Impact Investing Initiative

On the lovely morning of Labor Day, the Bay Area Impact Investing Initiative (BAIII) offered its audience an in-depth review of the research that started the Initiative. When the United Way of the Bay Area board asked its investment committee to develop a portfolio that would align its investments with its mission to reduce poverty in the Bay Area, we had no inkling of what we would discover. We were able to use current Modern Portfolio Theory, computer optimization programs, and objective research tools to create a stock-and-bond portfolio that could be aligned with our mission. Since a good job is a direct driver in reducing poverty, we developed a model equity portfolio that is dominated (75%) by companies headquartered in the Bay Area. The companies are large employers and also have attractive ESG (Environmental, Social and Governance) scores that indicate they are good employers, with positive employee policies, good environmental stewardship and strong management structures. The research presentation took a deep dive into the ESG criteria and alignment with mission, building the portfolio’s universe and structure, and discussing the issues of meeting our fiduciary duty as institutional investors. A broadly based bond portfolio designed to meet community reinvestment act criteria served as the solution to aligning the fixed income portfolio with the UWBA mission, participating in a national portfolio but earmarking Bay Area bonds for UWBA’s impact.

The BAIII is taking the UWBA research study to the next level. By applying fiduciary standards of due diligence, the concept of earmarking, and prudent risk and return expectations, we can extend the mission alignment to other asset classes. We all understand that different asset classes offer different risk and return combinations. They also offer different sorts of impact. In our equity portfolios, we would expect to impact corporate behavior through pro-active ESG screening and shareholder activism. In our bond portfolios, we expect to support local community and corporate fixed income markets and projects. In real estate, we can impact sustainability in building design, acquisition of land for community projects, supporting affordable and mixed use construction. The Bay Area Infrastructure portfolio can contribute to transit oriented development, water, schools, energy, communications, and public private partnerships for large projects. A Bay Area private equity and venture capital portfolio can impact job creation through new company formation, and in some cases, community development in urban deserts. Opportunities abound in the Bay Area. Pockets are deep in the Bay Area. Needs are great here as well. Let’s channel some of the wealth into financially sound investments that can benefit our local community over the long term, making us all better off.

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