Friday, January 26, 2007

Another view on aligned investing

Today's Wall Street Journal (subscription req'd) has an article by Jon Entine on social investing - which he calls a farce. The article is titled "What should Bill Gates Do?" Here's a quote:

The dark secret of "social investing" is that it is neither art nor science: It's image and impulse. It reflects perceptions, not performance.
Well, but here's the thing. All investing is some nether-world mix of art and science. What Entine calls image, impulse and perceptions, I call values. If you are going to invest in public companies - which its safe to say Foundations are going to do - thinking through how they align with your values, where they compromise, where you compromise for portfolio balance, etc. - is appropriate. These are precisely the same set of questions the foundations are (or should be) asking on the grant making side of the house.

Here's another slant on this - business leaders of grantmaking foundations have been pushing for a long time to make grant making more outcome oriented and more metric based - more like the investment side of the house. My question to them would be, why bother, if you're not also attempting to somehow leverage the 95% of the assets that work as investment capital. Doesn't it make sense that the skills, values, compromises and tricks from the investment side be complementary to those being sought on the grants side?

It may be true that no single foundation's investment in any particular company can change that company - though I doubt this in reality. But, what if foundations and other endowments collectively said we're moving just 10% of our assets to alternative investments - that would be about $50 billion available in one sweep. What would happen? You'd have the same market making capacity (and possible overload) that may already be happening in microfinance. It also happened in the last few years for hedge funds and before that in venture capital funds. Endowments are a large part of the capital available to the financial markets - they can have an impact.

Entine, who closes his article today noting that he was asked to do research on social investing for Gates Foundation, will be on the panel with me at Hudson Institute (Feb 12, 12- 2).

I invite Jon (and you ) to vote in the poll on aligned investing.

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