A Wall Street group asked me for some thoughts on investing with Compassion. I thought one angle that could be of interest to their readers is how having compassion can inform business opportunities. see article below
Too often when we talk about business ethics, compassion, and doing good, there is a “should” quality to the conversation that tugs on guilt and feelings of burdensome responsibility. I recommend against that framing of compassion. Better to ask yourself about your own values that speak to you that gives you the uplifting energy and the joy that can come from positive self-expression. Riding on this energy gives one the persistence needed to make things happen.
Compassion allows us to be in touch with true human needs. What has surprised me in my life has been how often addressing these basic constructive needs of our society has created so many business opportunities. MBA schools teach you about business models and monetization of the value proposition. This analytic approach can kill too many do-good opportunities as it is often very unclear of how helping the society is going to make money. I want to share here some stories from my life where we just went for “doing the right thing” that resonated for us but where the money-making model was not immediately apparent.
In the mid-1970s, just out of law school, and with my Wharton undergraduate financial engineering, I started one of the first money market funds in my bedroom. I had this idea to use government guaranteed floating rate loans as part of the portfolio to safely boost returns. We grew quickly and were usually the top performing fund and even received a certificate from Lipper for being #1 in returns over our first ten years.
Being somewhat successful and so young in the 1970s was quite unusual, and there were few role models for a generation that was taught “Don’t trust anyone over 30.” Then I saw a flyer about this conference to be held at a post hippy farm on exploring my generations values using the theme of Right Livelihood, which is part of the Buddhist Eight Fold Path to
Enlightenment. So, there I am, and people are talking about their work and how it can express their values. I am thinking that my only claim to fame for my gravestone was getting 40 basis points more than the next guy. This back woods conference inspired me to think that there should be a mutual fund that explicitly expresses values, and so we created Calvert Social Investment Fund, the first comprehensively screened regulated investment company.
In the beginning this unique fund was the chairman’s pet project at Calvert. I promoted the fund as an experiment because I believed an investment fund should exist that explicitly addresses values in the investment process – a very disruptive idea at the time. We were called Communists and whatever. I wasn’t thinking about running with this idea as a way for us to make money, but just as a flower we could plant on the side, and at with little cost as we already had fund infrastructure. But eventually this idea took hold and Calvert expanded this social investing/ESG (Environment Social Governance) overlay to our other funds and Calvert became known for this type of investing. Now, almost 35 years later, Calvert’s assets are over $20B. ESG fund flows are the only growth segment in the industry. I found it somewhat ironic when a Wall Street valuation consultant came by years ago and remarked that Calvert had quite a loyal customer base and. he gave us a significantly higher valuation than other fund groups our size!
With this do-good theme, Calvert attracted much talent, which proved to be a substantial collateral benefit I had not considered. Our active Advisory Council consisted of people like Amory Lovins (the energy guru), Hazel Hendersen, the head of Rodale Press, Randall Robinson, and others with in a very diverse counsel. I hired/enrolled the guy who lead the hippy farm to be our management consultant, which was this Harvard graduate’s first real job. A few years after he left us, he asked me for help on his taxes as his gross income from his corporate consulting was over $1m. Another person I hired, and after his relentless pursuit of me to work for Calvert, was a student just out of Harvard/Yale, Seth Goldman. After a few years, he left Calvert and started the values based Honest Tea company that he later sold to Coca-Cola for over $100m. Now he is the Exec Chair of Beyond Meat. Another guy I literally hired off a commune in Missouri when I said I was willing to work with his strong interest in labor issues through ESOPs. He later started American Capital, which he sold a few years ago for billions. Now I don’t want to identify great talents just because of how much money they made. We had many wonderful people, including a very special HR person who put our little company on the map as one of the best 100 places to work for in America.
It continues to amaze me how having a compassionate vision can attract the best and the brightest. Even my executive assistants have been from Stanford or Harvard type schools, and I never made any efforts toward recruiting. I follow the management wisdom of always hiring people better than me, as I am really not that talented. These visions that come from compassion have been a special blessing toward my successes. Years ago, I was with this older guy who was chairman of the National Venture Capital Association and the senior partner in a high-powered Silicon Valley venture fund. I brought up the subject of Impact Investing. He said he didn’t particularly believe in that approach, but then he said his firm was going to start an impact fund anyway because they need to attract the top talent. I didn’t go into with him how meaning and purpose is what can make work and life livable, but anyway today’s generation gets it.
One way our social investment fund expresses compassion has been a commitment to invest one percent of our assets at below market returns to further issues of social justice. Well, the SEC had never seen that before. Fast forward 30 years, and, just recently, I was on a zoom call with a former acting chairman of the SEC who, with a couple other policy makers, were wondering whether CRA (Community Investment Act) should be extended to non-bank asset pools. As a mutual fund, Calvert is an example of how a financial institution can use assets to successfully support local community lending, and especially we have not lost money in 30 year. I personally am not sure I am in favor of regulating and requiring good behavior. My proposal is to make a 2% carve-out for community lending permissible under the prudent man rule though I do suggest we update the concept to “the prudent woman rule” instead of a requirement for asset pools. Again, in my opinion compassion is better expressed when it comes from voluntary self-expression and not from government regulation.
Our 1% for social justice portfolio inside our funds attracted much attention and many investors wanted to know how they could just invest in that. So, we decided to start the non- profit Calvert Impact Capital (CIC), whose purpose was to direct monies to the underserved, mostly by funding locally based community funds. We started out with a little foundation financial support and infrastructure support from Calvert. I admit we had a rather lame business model in the beginning, but it was something that we decided was the right thing to do as Calvert’s community service. As the public learned about this, they began sending money to us by buying our Notes. Assets in this unregulated fund have grown to over $600m and over $1B in loans to microfinance and other projects benefiting the underserved. CIC also did the first environmental social bond in the country, among other innovations. The Wall Street Journal used CIC as the first example in a recent article on how to invest money in support of the current Covid crisis. Again, the CIC mission was able to attract top talent. During the 2009 financial crisis, Citibank came to our little non-profit to ask us to invest $200m for them into needy communities, which we did with over $100m.
At CIC we then began getting inquiries from people with substantial resources who wanted to do more impact investing, which is much about investing with compassion into private businesses. So, we created ImpactAssets, a donor advised fund (DAF) that encouraged people to use this pass through facility for their impact investments. Assets of ImpactAssets are now over $1B and our success has encouraged other DAFS, such those of Fidelity and Schwab, to start dabbling with our program concept for their clients. So, Making Change and another sustainable business inspired by Compassion!
As an entrepreneur, I also have feelings for those wanting to do business that has a societal vision. So, we set aside about $80m for direct and venture fund investments into those building a business within a social context vision. No other mutual fund was inclined to do this as it is a lot of work for a small management fee. I volunteered to lead this board designated portfolio called Special Equities. Our work helped spawn the now growing impact investing phenomenon. One investment of $200,000 was into Seventh Generation, the first non-chemical cleaning supplies company. We sold the investment years later for $8m! We also invested in the first fund, Poland Partners, to help the Eastern Europeans emerge from Communism. We did other first time funds, such as Leapfrog where we were the first institutional investor to commit into this fund that was going to help the underserved with micro-insurance. With our commitment, this guy, who had little fund experience, was then able to pitch IFC and other investors. LeapFrog now has more than $300m directed to profitably serve this market. We also lost a lot of money on many visionary projects that didn’t work out, but overall we did have a financial positive return. I think it fair to say that our shareholders were quite pleased with the impact the Special Equities program had with these visionary companies. The Special Equities program manager I hired was an African American with a Stanford Business degree. He is now doing a fund of funds, Illumen, that invests in venture funds which commit to an ongoing racial bias training program. You might think, as I did, that Illumen might be shut out from investing in top performing funds due to this serious time-consuming training requirement. Surprise! We have been admitted to many of the top funds, many of whom were already oversubscribed, but who wanted to be part of Illumen’s vision.
At Calvert we also had some resonance with the needs for more minorities in our society to be part of this exclusive money management white industry. So we partnered with a Chicago guy, John Rogers, an African American who had a small shop, to create the Calvert-Ariel Fund with his company as manager. Ariel funds now have more than $10B in assets. He is a regular commentator on the financial networks. We also went out of our way to pick other small African American firms to be subadvisors on our funds, people like Eddie Brown and Eugene Profit. The public track record they could then point to garnered them substantial assets and I believe helped with their firms’ financial sustainability and furthered the acceptance of minorities in the industry.
We also created the first social research department whose job was to provide advice to our portfolio managers on choosing stocks. The department also dialogued with our many companies with an attitude that we might be able to make them better companies. The companies didn’t always agree with our recommendations and so we began filing shareholder resolutions. That got attention. We withdrew almost half of these resolutions as we came to a satisfactory resolution with these multilateral corporations One issue one of our staff became interested in, as he was buying a new computer, was as he wondered what happened to the old computers. Well, as investors in Dell, we asked their board to do a study on what happened to their computers after they sold them. While our lawyers and their lawyers were arguing over this resolution, Michael Dell himself got involved and invited Calvert into his office. He actually liked the idea and Dell became the first computer manufacturer to have a post-consumer waste recycling program. Once Dell did this, the other computer companies adopted this practice. In the 1990s, we formally asked a large oil company to do a study on their environmental impact on their drilling in the North Slope of Alaska. I went to the shareholders meeting. I was the first person to be called up by the chairman, who invited me to go and inspect their practices on the North Slope. I made the visit starting with the Alaska manager, who employed more people in Alaska than any other private company. These companies are used to dealing with intractable activists, but not concerned shareholders who are owners of the company. I believe we had a good effect, mostly by legitimizing and providing support to the inhouse champions wanting to create more environmental consciousness in the company.
Another investment out of the Special Equities portfolio was, as one of six investors, starting the China Environment Fund in Beijing. Now in the late 90s people thought we were crazy to support such a fund and argued that the Chinese didn’t care about the environment. We thought they would eventually care, as we did. Their fund complex grew and they became a “go to” investor on the environment as that theme became popular. We also doubled our money on that early fund.
In China, I met a young student who was doing a newsletter on Corporate Social Responsibility (CSR). I asked him about his web site and he said he didn’t have any money for that. I was about to fund that website personally as I thought this work was important in this emerging country. Then I thought that maybe this can also be a sustainable business. So, soon after he graduated, we started Syntao (meaning the way of business), which now has over 80 people, offices in five cities in China, and with such a great reputation that Moody’s invested in our spin off subsidiary, Syntao Green Finance.
My latest startup, ZenFlo, is based in Beijing with a seeming impossible mission to further mindfulness. I believe the greatest gift you can give someone is a better relationship to themselves. We use float tanks, which we manufacture, and Sliicon Valley “transformative technologies” to accelerate the benefits of meditation. A main personal motive was to dive into this area for my own development as I am getting older and I don’t have much discipline. Making it into a company forces me to engage onto this path of well-being. I am experiencing good personal results working with my monkey mind. It even helps me be a better investor. We get many finance professionals coming by and I ask them to what does Ray Dalio, head of the largest hedge fund in the world, attribute his success? One word: Meditation. And too, sourcing these technologies has opened up new angel investing opportunities and an appreciation of the burgeoning e-health industry. For example, I am on the board of an insurance company and have been arguing that we need to get into wearables for our customers. Compassion was not the ar In life insurance, you bet you are going to die and the insurance company bets you are going to live. So, if we can help them live longer, we can make more money – and doing good at the same time.
I was invited to give a talk to the senior executives at Temasek, one of the world’s largest sovereign funds (Singapore). They were expecting a talk on climate change investing opportunities, but instead I talked about Well Being. I was gratified the CEO reflected on my remarks in his closing comments. So, to what effect? Good question. Before I got on the plane to Singapore, I was with Tim Chang, a partner at a highly reputed venture firm who has been a proponent of these technologies. He said that firms like his take orders from their LPs and Temasek is one of their big investors. He sincerely wished me luck on my upcoming visit. In Singapore, I had a “handler” for my presentation who was also a world sustainability expert. He was not pleased about me straying from the environmental agenda, but I did my talk anyway. In an e-mail 18 months later, he wrote me to say he had an epiphany about my talk and that if we are going to save the environment, he now gets the importance of the consciousness theme. Big intellectuals at world famous environmental non-profits don’t exactly apologize, but the e-mail did make my day. In my talk, I related environmental concerns to mindfulness with the adage “Be the change you want to see in the world.”
A couple years ago I was partnered with this Chinese guy, whom I didn’t know, at a kind of philanthropy conference on this mindfulness agenda. He told me he wanted to create a $100m fund to support wellbeing technologies. I told him it might be hard raising that amount of money. He said it wasn’t a problem as he was going to just write a check! Turns out he co-founded Matrix Partners, perhaps the largest venture fund in the world with more than $3B. I was quite humbled by this exceptional young Chinese billionaire who was committing his talents and resources on this road of spreading compassion. Almost every young entrepreneur in China knows about him and let’s hope his message becomes infectious.
So, the point of my observations in this article is that having compassion can help you also empathize with true human needs which, surprisingly, can lead to sustainable business opportunities. My amazing luck was too that I could recruit great managers for these visionary efforts. Truly, one should not work on your compassion so that you can invent good businesses, but heh, what an amazing side benefit!!
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