Students at UC Berkeley’s Center for Responsible Business run a socially responsible investment fund. They explain why the fund is a powerful learning tool and how they achieve 50% returns in ISR.
The Haas School of Business houses a student-run socially responsible investment fund. Several of the fund’s student principals – Alicia Chan, Chao Zhang, Emilie Deng, Michael Ciulis, Matt Therian and Paul Maa – describe the operation of the fund:
In 2007, $1.325M was donated to Haas’ Center for Responsible Business. The money was used to create the Haas Socially Responsible Investment Fund (HSRIF), which is managed by Haas MBA students. Students began investing with $1.14M in 2008. The fund’s principal has steadily grown to approximately $1.7M, a return of almost 50 per cent over five years. “These returns were achieved during one of the most turbulent markets in modern history,” says Haas Professor Lloyd Kurtz, who serves on the HSRIF Advisory Board. “During the past four years, the S&P 500 reached a high of 1466 and a low of 667.”
Running the Fund
The fund is run by a team of six to 12 student managers. The students have full responsibility for investment decisions, including conducting their own research on companies’ environmental, social and governance (ESG) performance. All investment decisions start with a “quick pitch,” where a student submits a one- to two-page investment proposal for review by their peers. If the quick pitch is well received, the student will then write a 10- to 20-page pitch, outlining the details of the investment recommendation. The long pitch is followed by a vote.
One of the challenges faced by the fund is a 50 per cent turnover of student managers each year, due to graduation. To maintain consistency in fund management, students begin recruiting their replacements in the fall semester. This allows successful applicants to work alongside the current principals for a full semester in the spring. The period of overlap ensures that values and management processes are passed from year to year, increasing consistency.
While the fund is fully student-run, students receive guidance from both a faculty advisor and an advisory board. The faculty advisor, Dr. Nadja Guenster, provides regular input on portfolio management, understanding portfolio performance and ESG investing. The Fund’s Advisory Board has 11 members, all professionals working in investment management. The students hold quarterly calls with the Advisory Board, for advice on issues including fund voting practices and advice on investing in particular companies.
Benefits of the Student-led SRI Fund
Christina Meinberg, Associate Director of the Center for Responsible Business, and the fund’s student managers share the positive outcomes of the fund:
Students Can Shape Practice.
Through their work evaluating the social and environmental performance of firms, student managers are also presented with lobbying opportunities. For example, several years ago, students lobbied a large, global consulting firm to change its approach to political contributions. The result? The firm agreed to publicly post its policy on political spending, which specifically forbids use of corporate funds. It also agreed to join the Environmental Committee of the U.S. Chamber of Commerce so that it could better influence the views of the Chamber.
Students Learn to Work Independently.
Student managers have full responsibility for managing the investment portfolio. This includes managing processes for research, pitching, voting, recruiting and managing relationships with the Advisory Board. This independence teaches skills that cannot be taught in a classroom, such as:
Identifying needed actions and taking independent ownership to follow through.
Real-world accountability and responsibility, with tangible repercussions.
Active portfolio management in the SRI space.
Networking Leads to Employment.
Student managers network with a range of professionals in the investment industry. The networking and skill development that comes from these relationships often leads to post-graduation employment. For example, HSRIF alumni now work for investment firms such as Prudential Capital, Osmium Partners, Cambridge Associates and other traditional Wall Street firms where they can raise awareness on social responsibility issues.
Tips for Creating a Successful, Student-led Investment Fund
Dr. Nadja Guenster, fund faculty advisor, and Christina Meinberg share their advice for ensuring student-led investment funds are successful:
Grow your network: The investment community is small. The socially responsible investment community is even smaller. Developing relationships with those in the industry who can mentor students and inform fund direction is critical to success. Faculty considering launching a similar fund should start by building a strong network of investment advisors and should encourage student managers to grow these relationships.
Play to your strengths: The Center for Responsible Business was founded nearly a decade ago and drives the school’s excellence in sustainability. The Centre’s expertise contributed to Haas having the “Best Green MBA” in 2013, according to the Princeton Review (the ranking is based on student surveys at 296 business schools, mostly in the U.S.). This distinction, combined with the strength of Haas’ finance program, provided a strong foundation for the creation of the HSRIF in 2007. Each year, Haas Professor Lloyd Kurtz also offers a class on socially responsible investing. This course provides an introduction to SRI from an academic perspective, which student principals can then apply to fund management.
Leverage your school’s unique culture: Any business school graduate knows the importance of earning profits. Haas students are also encouraged to go beyond profit and question the status quo. Haas students and alumni are eager to redefine how business is done, a culture driven largely by Dean Richard Lyons’ focus on path-bending leadership. As a result of this culture, the Fund’s student managers are well positioned for their role in socially responsible investment.
Berkeley Haas extends special thanks Professor Kellie McElhaney, who launched the Fund with generous donations from Haas alumnus Charlie Michael (BS ‘78); his wife, Doris; Haas alumnus Al Johnson, (BS ‘62 and MBA ‘69); along with his wife, Marguerite; and Haas alumnus Larry Johnson (BS ’72); and his wife Victoria.
Learn more about the Haas Socially Responsible Investment Fund or contact Nadja Guenster for more information.