Can Socially Responsible Investing Succeed in Advisory Solutions?

This post is a summary of a session from the MMI’s 2011 Annual Convention.

The moderator was Thomas Kostigen, Editorial Contributor, Dow Jones Market Watch and the panelists were Stuart J. Boesky, CEO, The Pembrook Group, John M. Buley, Jr., Managing Director, J.P. Morgan and Sean Greene, Associate Administrator for Investment, U.S. Small Business Administration (SBA).

The goals of Socially Responsible Investing (SRI), are to provide above average returns for investors while simultaneously meeting political or social needs. The market size for SRI, also referred to as Impact Investing, is approximately $50 billion with a ten-fold increase projected over the next ten years, Thomas reported.

The Pembrook Group has levered off government programs to provide their investors an above-market, risk-adjusted return, according to Stuart. They felt that if they could master the utilization of government programs to support the flow of capital for certain political and policy reasons, there would be an advantage in producing returns for their investors.

They have a Private Equity product that produces a high, current return by taking advantage of the lack of capital in the commercial real estate market and using first mortgages, bridge and mezzanine loans. What makes this a better investment is that Pembrook figured out how to leverage government programs that require U.S. banks to invest in urban areas or areas that have been designated for redevelopment.

Pembrook is also working on a tax- exempt program using the Community Re-Investment Act. These investments receive an exemption from federal income taxes, which translates into a 35% increase in net return (at the highest taxable federal rate). This is the only asset class where the owner of a mortgage can get term financing, with no mark to market issues, and the net result is that returns on these bonds is approximately 17%.

The JP Morgan Social Finance Group was started in 2007, John noted. Their definition of impact investing is where the intent of the investor is to seek not only a financial return but to also an extra return in the form of a social or economic impact. JP Morgan provided a $100 mm in 2008 for impact investments predominantly in emerging markets. The focus on the poor and underserved throughout the world. Most of the investments that they have made have gone to the “base” of the economic pyramid. John reminded us that 70% of the world population lives under circumstances where they have no access to capital, clean water or formal education. Micro-finance is one of the tools by which skilled people are bringing capital solutions to poverty remediation. They’re missing a system which brings capital to entrepreneurs, where they can build small and medium sized enterprises.

They’re not part of the JP Morgan foundation, they’re part of the investment bank, but their motives are not pure profit maximization. In fact, their definition of impact investment relies on the strict measurement of outcomes, John stressed. They ask questions such as, “What have you done that has a measurable impact in emerging market societies?” Return is important, but it’s not the only measurement.

The government is also participating in the SRI trend. Sean revealed that the SBA is committed to deploying $1 billion of capital in impact investing over the next five years. Two-thirds of net new jobs come from small businesses, he said. More than 90% of those new jobs are concentrated in just 4-5% of small firms.

The Small Business Investment Company (SBIC) program that provides access to capital for small businesses. It is a fund of funds with $16 billion AUM, half private, half public. It has funded formerly small businesses such as Intel, Fedex and Costco. The fund costs taxpayers nothing because the government is paid back by profits, Sean explained.

The government funds the program with debt, which provides additional upside due to the low cost of its leverage.

0 Responses

  1. SEC Charges Advisor In SRI Scam

    The Securities and Exchange Commission has charged a Philadelphia-based registered investment advisor with defrauding clients of approximately $8.7 million by promising he would invest their money in socially responsible companies but instead using it to pay other investors and fund his business.

    The SEC today charged 62-year-old Sam Otto Folin, a chartered financial analyst; his Philadelphia-based RIA, Benchmark Asset Managers LLC; and its parent company, Harvest Managers LLC, with misappropriating the money from advisory clients, friends and family over eight years.

    Read the rest of this article here:

  2. I found a good article on SRI called, “Five Reasons To Be Optimistic About Corporate Social Responsibility”. It summarizes some positive reports. You can read it here:



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