Consciously Constructing Dynamic Portfolios

Any investor is told “make sure you diversify”; generally, this is in reference to risk, geography, financial structure, but mostly…asset class. Based upon your financial goals, you want to have a mix of cash, fixed income, public equities, and other assets. The primary goal of portfolio management is to maximize financial return with the least amount of risk…bottom line. Without any consideration for what those investments are doing and what companies and corporate practices are occurring. And why should they? At the end of the day, they are several steps removed…so that’s not their responsibility.

Many are told – “make as much as you can, save as much as you can, give as much as you can.” …but what about the “making”? What if that entails doing things counter to your values? Now, in the direct work you do…you would never think about doing something counter to your values. But in your investments…we seldom think to give it a second thought.

Yet, it is possible to not check your desires and values at the door when considering your own personal or corporate investments – what we call consciously constructing your portfolio. Conscious construction means going in eyes wide open. It means bringing your values to mind and to bear as you consider your investments. It doesn’t mean you must accept a lower return financially…but it does mean you must dig deeper to uncover those companies and investment strategies, really working hard to align return and impact. In fact, it’s not only possible, but the process of learning and discovery is both fun and enlightening!

In our world of endowments – a legal structure for managing, and in many cases indefinitely perpetuating, a pool of capital for a specific purpose according to the will of its founders and donors, a staggering $3.67 trillion in the US in 2017 – little is presently expected and inspected related to this concept. In general, the IRS requires a minimum of 5% of the non-charitable assets of your endowment to be deployed annually in line with your charitable purpose (of which ~2% can be administration costs). That means a meager ~3% is being deployed as a grant or activity to support people and communities aligned with your core purpose as an organization. The other 95% is invested simply for financial returns alone so that this entity can exist “into perpetuity” with no expectation to analyze or review these investments for any sort of negative externalities or impact. Which dollar then is more powerful? For example, what if your charitable purpose is early childhood education and you promote and are proud of the many ways you are working to fix the problem through your direct efforts, and yet your endowment is holding shares in a private prison company that is linked specifically to lifelong impacts on a child’s early learning capability? Which dollar matters more?

Many may say this is idealism and not possible. Yet, many people are working across the various asset classes to do just that – align values and return. Whether it’s a real estate investment company profitably providing eco-friendly affordable housing, while simultaneously improving the lives of their residents through various programs such as early childhood education and wellness. Or whether despite record credit expansion in the U.S. economy, affordable financing for small businesses and historically underserved communities remains largely inaccessible from traditional lenders. There are institutional investment managers that provide strategic debt capital to demonstrate and scale responsible innovation in lending for underserved communities while also generating impressive and positive returns for investors. Or even within fixed-income strategies that are working to overlay their bond strategy with a lens for opportunities that positively impact the environment, education, housing, healthcare, social improvement, energy efficiency and infrastructure improvements, among other options.

Conscious construction. It’s time we open our eyes to the possibilities and challenge the false assumption they will be financially underperforming if maximizing shareholder returns is not the sole purpose. Access Ventures works every day alongside our partners to consciously construct a dynamic portfolio. We realize that this idea is new or even foreign to most people. It is with this in mind that we are excited to launch Season 3 of our podcast, More Than Profit, this Thursday, February 18th. We will focus this season on diving deeper with funds and the fund managers that work every day to achieve a positive impact through their investments – while never sacrificing profit. If you are interested in learning more about the how of conscious construction please join us for the conversation by subscribing to the podcast and be the first to know when a new episode drops.