Screening a portfolio is not a “one-size-fits-all” scenario. Investors have varying social values. This seems to be most prevalent in equities and corporate debt as a result of investors seeking investments in companies with positive environmental, social and governance records. Many institutional investors have policies in place that clearly set forth their positive screening factors. What if, though, there were investments where investors didn’t have to decide if a company was or wasn’t in line with their values or missions? It seems that many market-rate asset classes that have clear qualitative and quantitative outcomes get lost in the shuffle when it comes to positive screening. Here are a few examples:
- Insured Deposits (Cash): Market-rate insured deposits offer a low-risk option for investors looking to positively align their investments. Many of their lending activity are in low-income/underserved communities. These products are typically federally insured and can provide market rates of return with a focus on low wealth communities. Just a quick list of some of their positive outcomes: home ownership, small business lending, environmental conservation, microcredit, financial literacy training, job creation and business development. With many of these instruments, investors can see quantitative positive results from their investment.
- Fixed Income (excluding Corporates): Moving up the traditional risk spectrum takes us to fixed income (excluding Corporates). There are various bonds, such as municipal bonds and multifamily MBS that can be positively aligned with an investor’s values. Municipal bonds fund the construction of schools, housing projects, hospitals, etc. Revenue bonds, in particular, fund a specific project and are backed by the cash flows generated from that project. The project could be part of a large revitalization effort or possibly an environmentally friendly activity that is helping to improve the community. General Obligation (GO) bonds are backed by the full faith and credit of the issuing municipality. Many of these issues offer clearly defined use of proceeds analysis providing an investor with qualitative and many times, quantitative positive outcomes. Multifamily MBS issues can finance affordable housing properties. A large majority of these properties are now incorporating other ‘human capital’ initiatives in distressed urban core neighborhoods enabling residents to lead healthy lives in self-sustaining communities.
- Private Equity: Moving even further along the traditional risk spectrum takes us to private equity. Many private equity funds now have an explicit focus on inner cities and underserved communities providing investors with quantitative and qualitative positive outcomes. For example, one private equity fund targets market-rate financial returns and social benefits to rural communities and those affected by natural disasters in South America. Another example is a private real estate fund that acquires and develops commercial properties in inner-city communities providing opportunities for corporate, government and retail tenants to locate facilities in these properties.
Investors who choose to rely only on equities and/or corporate debt as part of their positively screened portfolios are missing out on the numerous tracked and measured real positive outcomes that can result from investing in the aforementioned areas.