Not many investment funds can boast a five-year return of better than 50 percent. Fewer still are run by graduate students. But the Haas Socially Responsible Investment Fund (HSRIF) meets both criteria, and has become an important training ground for future investment managers as well as a significant source of income for the Haas School’s Center for Responsible Business (CRB).
Hoping to build on the success of the fund and the class in which students manage the fund's portfolio, the CRB has launched an ambitious program to boost the fund’s capital to $15 million from its current level of nearly $2 million. Having more money to work with, says CRB Executive Director Jo Mackness, will serve three purposes:
- Give students real-world experience managing a larger, more diversified portfolio that includes asset classes beyond equities.
- More deeply engage and educate the investor community who have donated to the fund, are sitting on the fund’s advisory committee, and are closely tracking its progress.
- Make HSRIF large enough to fully fund the center’s annual operating budget, thus becoming a real-life model of a nonprofit that is self-sustaining in the long run.
Unlike traditional classes in which students build model portfolios and track theoretical returns, the dozen students in the HSRIF class are buying and selling equities using investors’ money.
“The students learn to manage a real, active investment portfolio, which includes stock picking, performance attribution, and portfolio construction—basically all the material we teach in a standard investment class. But the fund provides the students with the opportunity to apply this knowledge,” says Nadja Guenster, a visiting assistant professor at Haas who teaches the class.
Clearly, the student “principals” are doing something right. When the fund was launched and students made the first investments in 2008, thanks to donations from three Haas alumni, it had a capitalization of $1.1 million and was the first student-managed investment fund at a top business school to use socially responsible criteria. By spring 2013 it had grown by 54 percent to $1.7 million.
Selecting profitable companies that are also socially responsible is challenging. “We grappled with grey areas to understand what sorts of investments met the criteria,” says Wendy Walker, MBA 11, who took the class. “Walmart is good on environmental issues, but has a poor labor record. So what do we do?”
The fund did invest in Walmart, but divested a year later when the company was tarnished by a bribery scandal in Mexico, says Garnett Booth, MBA 14, a student in the class.
On the other hand, “there are companies that at first glance don’t seem like they’re socially responsible, but really are,” he says, citing the Norfolk Southern Railway, whose business removes thousands of polluting trucks from the highway.
After graduation, Walker joined Cambridge Associates, where she now is an investment consultant, one of three HSRIF class veterans at the firm. Walker is also a member of the CRB’s Investment Advisory Committee. “Advisory means just that. We advise the students on the investment strategy and process, but the ultimate decision is theirs,” she says.