Milwaukee-based The Catholic Funds group is undergoing a spiritual conversion of sorts. The complex is changing its investment style, altering its screening for Catholic values, and hoping to attract new institutional investors, including Catholic universities with sizable endowments.
The Catholic Funds, which has only attracted $15 million in its three years of existence, is making the changes in an attempt to attract more assets. The group is consolidating its three actively managed equity funds into one passively managed equity fund, the Catholic Equity Fund, which will loosely track the S&P 500 Index.
Daniel J. Steininger, chairman of The Catholic Funds, said the complex is moving to passive management because over the long run, the S&P 500 Index has performed better than the average portfolio manager.
The group is also changing its investment mandate. Except for the issue of abortion, the fund will no longer exclude companies that fail to meet specific Catholic stewardship criteria, Steininger said. Instead, the fund will invest in companies that exercise positive workplace issues and shareholder advocacy programs, he said.
Specifically, the Catholic Equity Fund will not invest in companies that don't provide employees with what the group's investment team deems to be a fair and livable wage.
It will also exclude the stocks of companies that the fund's management believes are not providing safe and sanitary working conditions. Further, it will also exclude the stocks of companies that do not have independent directors on their boards, as well as those that overcompensate executives at the expense of other employees or shareholders, according to Steininger.
"We've been inspired by the abuses cited in the media. We're going to focus on workplace issues like a laser," Steininger said. "As shareholders, [management has] to listen to us. We can become a constant irritant to them." Steininger expects to propose a host of shareholder resolutions and special meetings.
The redirection of The Catholic Funds group also brings with it a new target audience, Steininger said. Instead of just selling the fund to Catholic investors, the group will target Catholic universities and other institutional investors. The complex has hired a vice president to focus on this market. "There is a huge amount of money in the endowments of Catholic institutions," Steininger said. To heighten awareness, the new fund will also be advertised in select Christian-focused magazines.
The new Catholic Equity Fund will have three share classes: a new C-share class, a no-load institutional I-share class and the original A-share class.
Catholic Financial Services Corp. (CFSC) is the adviser to the fund group. CFSC is an alliance of four fraternal benefit societies, and a wholly owned subsidiary of Catholic Knights, a non-profit fraternal benefit life insurance society.
Mellon Equity Associates, a subsidiary of Mellon Financial Corp. of Pittsburgh, will become the fund's new sub-advisor, replacing the respective sub-advisors to the existing funds. On the $5.3 million Catholic Equity-Income Fund, Mellon replaces Todd Investment Advisers of Louisville, Ky. On the $6 million Catholic Large-Cap Growth Fund, Mellon replaces Peregrine Capital Management of Minneapolis. And on the $4.5 million Catholic Disciplined Capital Appreciation Fund, Mellon replaces Vintage Global Investment Advisors, the Philadelphia subsidiary of Lincoln National Corp.
CFSC has not fared well in this niche market. In 1994, there were only nine funds that invested under a religious mandate, with combined assets of just over $150 million, according to Morningstar of Chicago. At the end of March of 2002, there were 22 religiously invested funds with just shy of $723 million between them, according to Morningstar.