For some investors, putting their money to work for the causes they believe in is a top priority. For advisor Lisette Cooper, founder of Boston-area RIA Athena Capital, helping clients do so has also been a primary driver of her firm’s growth.
- Read the full story: 7 Smart Strategies for Impact Investing
The ‘socially responsible investing’ of the ‘90s – using negative screens to weed out investments in certain sectors or divisive geographic locations – has given way to a new approach with a new label: impact investing. Instead of simply screening out trouble areas, impact investing refers more broadly to the alignment of clients' values with their portfolios.
Here are seven of Athena’s impact investing strategies:
1. Know the trade-offs. Be prepared to give something up, Cooper says. Although her firm generates strong risk-adjusted returns through impact investing, she says, clients often must trade a desirable attribute such as liquidity for a three-year investment period to get it.
2. Consider cash options. Athena tries to apply a client's values to each asset class. That means one of Athena’s clients puts her cash in community banks instead of large financial institutions.
3. Develop fixed-income priorities. Cooper suggests municipal bonds that invest in infrastructure or other improvements -- such as a bond for pollution control. “That’s to the social good,” she says. Cooper uses Breckinridge Capital Advisors, a bond manager that she says offers a customizable service.
4. Use equity funds. In equities, the easiest way to implement impact investing is through funds that meet the objectives that your clients are interested in with separate accounts. Cooper says Athena uses Parametric, a Seattle asset management firm: “They have a role in pretty much all of our impact clients’ accounts."
5. Get private equity promises. For private equity investments, Cooper will ask fund managers for a side letter guaranteeing that the fund will not invest in certain areas that her clients object to. Or if they do invest in those areas, she asks them to commit in writing that they will not use any of her clients’ funds for them. In real estate, for instance, “if a manager invests in things like office buildings and hotels and multi-family housing, that is fine,” she says. “But [for her Catholic client], you absolutely cannot invest in abortion clinics or hospitals that perform abortions, or any industrial buildings that produce weapons.” For Cooper’s pro-choice clients, meanwhile, funds that invest in abortion clinic construction can generate higher returns, given the risks attached to those projects.
6. Choose focused hedge funds. Athena still uses the global hedge fund run by former Goldman Sachs executive David Blood and former U.S. Vice President Al Gore, the Generation IM Global Equity Fund. Colloquially known as the “Blood and Gore Fund,” it is run by Generation Investment Management. “That was one of the early impact investing funds. It’s done really well,” Cooper says. "They’ve compared very favorably to their peer group."
7. Take your time. Typically it takes about three years to transition a portfolio to an impact investing strategy, Cooper says: “It’s an iterative process.”