Private family foundations that want to express their mission values through socially responsible investing (SRI), often must choose from a universe of expensive, actively managed products with weak performance or index products with limited flexibility and no SRI proxy voting. The trade-off is weak performance for being socially responsible.
Aperio Group, an indexing outfit in Sausalito, California, purports to have a better approach. Aperio's clients are predominantly high-net-worth families and foundations, each with a separate account starting at a minimum of $1 million. The firm creates customized SRI portfolios it says match each client's personal values while delivering the diversification, risk reduction and low fees of indexing. "Clients get the best of both worlds: A portfolio that reflects what they believe in—and tracks their benchmark."
No Investment Penalty for SRI
In a recent telephone interview, Aperio's Chief of Staff Liz Michaels described the firm's approach to creating SRI portfolios. This combines detailed evaluations of companies' social responsibility with Aperio's own financial models. "What most people don't realize is that the cost, from a risk perspective, of screening a portfolio (positive, negative or best in class) is often negligible," she said. "As a firm, we don't believe there is alpha to be had through SRI, but we also don't believe and can theoretically and empirically prove that there are no investment penalties for doing so."
One SRI client Michaels cited as an example is a West Coast family whose private foundation makes significant allocations to issues around the environment. Members of the family's younger generation, adult children, came to Aperio after examining the investment portfolio and realizing that it held some of the same companies the foundation was committed to oppose. They wanted market exposure, but the current portfolio did not make sense.
