SRI Hedge Funds- Doh! Homer & Friends I
Jed Emerson, a thoughtful manager of bothÂ philanthropy and investment, probably didn't ask to be called a ârock star of a new breed of innovatorsâ, blended investors combining profits and SRI.Â He did publish a thoughtful, somewhat scholarly article (it has footnotes and everything) in December, 2009, Beyond Good Versus Evil: Hedge Fund Investing and the Sustainability Challenge. We've arranged a brief panel discussion between Henry David Thoreau, Gordon Gekko and Homer Simpson to discuss some high points.
Gekko:Â For starters Jed is writing only about a very specific slice of the hedge fund world, funds that pick publicly traded equities using very deep long-term fundamental analysis (and funds that pick that type of fund).Â His constraints exclude a lot of hedge funds, the ones using technical analysis, funds that don't trade equities or funds like mine , the Gekko Greed is Good Fund, the kind that push markets around with our own weight.Â AlthoughÂ Jed's fundamental Â methodology excludes a lot of hedge funds, it could also describe the analytical goals ofÂ a lot of non-hedge fund stock pickers, look at his 6 core components of fundamental investing â it's like a reincarnated Graham & Dodd, thinking muchÂ farther outside the box.
Gekko:Â He's talking about really deep analysis for a long-term play, not just looking for next quarters income or even for hidden values on and off the balance sheet (the kind of values I could use to come up with a self-financing LBO, now that's good), but the management practices, transparency, risks and opportunities (which should include environmental problems, employee turnover and other employee concerns, waste reduction, ethics, etc.) that don't show up on the financials â yet.Â The same kind of social responsibility and environmental awareness that Hank likes should also pay off in problems avoided and opportunities spotted over the long haul.
Thoreau:Â It's Henry. Â So instead of just going with mutual funds, private equities or ETFs that avoid sinful industries or stick to green investments, I could buy a hedge fund?
Gekko:Â It's your money, Hank, Â but the negative screen approach never worked for me, I'm always maxing my alpha.Â If you like a pure play, say you think windmills are hot, great buy a windmill fund, but be ready to shift sectors when the wind shifts.
Homer: Doh, you guys are slick.Â Can I have another donut?
Gekko:Â Few hedge funds really offerred socially responsible investing or sustainability, even though other types of investment pools or partnerships did.Â Jed is saying the right kind of hedge fund might pick pretty much the same stocks as a sustainability oriented fund.
Thoreau:Â Please call me Henry.Â So Jed is thinking of a sustainability hedge fund.
Gekko:Â No, Jed is writing about a mode of investment selection that is so deep and so long term that, even picking purely to maximize profits, it should logically come up with the same type of stocks as a sustainability oriented fund.
Homer:Â What's long term?
Gekko: (cough, cough)Â A year is a long time for a hedge fund.
Thoreau:Â A year?Â I usually think of forever as a long time.Â I'd like to find a stock or a fund thatÂ I could leave to my grandchildren, even if the economy is stagnant.
Gekko:Â Homer, have another donut, you've asked enough questions for a while.Â Henry, good luck finding that sustainable forever stock, your return might go negative, how much are you willing to pay for SRI.
Thoreau:Â The return on investment wasn'tÂ my only concern â I have a lot of objectives when I make an investment.Â Even using negative screening, I can keep up with the market. My best in class SRI mutual fund is doing even better and so is the DJSI.Â I think maybe I could do better still, if I could just find a hedge fund that would take this deep analysis all the way.Â Â Maybe I'll try something myself,Â how does the Walden Fund sound?
Tomorrow our panel takes on the short sale.