As part of our 10 year anniversary blog series, Deborah Fleischer, Green Impact, Marketing and Communications Consultant to CRB, had the opportunity to speak with Charlie Michaels, BS ’78, the force behind the Haas Socially Responsible Investment Fund (HSRIF).
Back when Charlie Michaels, BS ’78 was studying business at Haas as an undergraduate, he was attracted to ideas that today would be considered corporate responsibility but at the time were not yet a focus in any classes. Undeterred by the lack of academic focus on the topic, Charlie wrote his senior thesis on assessing the social responsibility of three major banks, including such factors as equal opportunity lending, hiring of women, and advertising practices (Wells Fargo came out the most socially responsible at the time). Before graduating, he went on a stroll through the Rose Garden with his wife Doris and made her a promise “to do something that would influence the for-profit business community to be better citizens.” His strategy was to go mainstream and then use his resources to do something meaningful.
After getting his MBA from Columbia (although his heart belongs to Cal), he launched a successful career in international finance at Goldman Sachs, where he was a founding member of Goldman’s European equities business. In 1996, he co-founded Sierra Global Management, where he serves as President.
Creating the Haas Socially Responsible Investment Fund
Six years ago, Charlie stayed true to his promise, providing critical leadership and seed funding to launch one of the first student-run impact investment funds. When there was pressure to broaden the fund to include traditional investments, Charlie stood firm on the idea that it should be focused on social responsibility.
After his initial investment of $250,000, the fund received front-page coverage in the Wall Street Journal. Following his donation, other committed alums (Al Johnson, BS ‘62 and MBA ‘69, and his wife Marguerite and Larry Johnson, BS ‘72, and his wife Victoria) also provided generous gifts, allowing Haas to launch the Haas Socially Responsible Investment Fund (HSRIF) in 2007.
MBA students began investing the money in 2008 and the initial investment of $1.143M has grown to $1.7M, a 50% return on investment over five years. HSRIF is a success story both in terms of the unique learning opportunity it offers, as well as the financial return it delivers.
Today, Charlie is an Advisory Committee member for the Fund and is proud of how HSRIF has developed. “The Fund has been handled so professionally by Haas and the students—it has definitely exceeded my initial expectations,” said Charlie.
The Nuts and Bolts of HSRIF
The HSRIF is an investment fund which seeks to achieve a balance between financial and social/environmental performance, managed by the HSRIF Principals, a carefully selected group of six to twelve MBA students. The students have full responsibility for investment decisions, including conducting their own research on companies’ environmental, social, and governance (ESG) performance. With more than $1.5M assets under management, students experience the opportunities and challenges of professional asset management and are exposed to socially responsible investing (SRI) concepts including sustainability principles, supply chain practices, and treatment of workers.
To gain theoretical footing in SRI, students managing the Fund are required to enroll in Social Investing and Recent Findings in Management and Finance, a course focused on SRI techniques taught by Lloyd Kurtz, Haas lecturer, Chief Investment Officer at Nelson Capital, and internationally-recognized expert on SRI.
Students work closely with a faculty advisor, currently Nadja Guenster, the 2005 Moskowitz Prize winner for best quantitative study in the SRI domain. CRB’s founder Kellie McElhaney was its original faculty advisor and played a pivotal role in launching the Fund.
The Principals also receive guidance from an Investment Advisory Committee, which consists of well-recognized practitioners and academics, including experts on SRI and corporate responsibility. The Advisory Committee members provide critical feedback on the principals’ investment decisions through quarterly calls and long pitch sessions. Every year, the principals put together an annual report summarizing the most important investment decisions and providing an analysis of fund performance.
As detailed in the most recent HSRIF 2012 Annual Report, against the backdrop of financial crises abroad and a robust IPO tech market at home, the Fund returned a benchmark-beating 4.96% for the 2011-2012 academic year.
The Future of the Fund
“Now is the time for the Fund to accomplish something even bigger. It can possibly make an impact on the entire investment community and show that investing in companies that balance the for-profit motive with environmental, social, and corporate governance standards outperforms traditional non-ESG investment approaches,” explained Charlie.
“It is clear, if companies don’t pollute our environment, do treat their staff and communities well, and do have excellent corporate governance, they will prosper in the long run and generate higher returns and profit growth.”
Charlie’s vision for the future is to grow the Fund’s assets, generate higher returns, and support academic research that quantifies the value of companies’ ESG practices. “That is what excites me most about the future for the HSRIF,” he concluded.
Our long-term goal is to increase capital in HSRIF to $15M, which, assuming a modest return, would yield enough yearly profit to support the Center’s annual operating budget. Growing HSRIF would provide an earned income stream that would enable the Center to be self-sustaining and thus a living example of the very kind of business it is seeking to promote.
It is so good to see this investment strategy realize incredible returns. I will certainly–as a company in the sustainable business industry–use this example in my dealings with the investment community (who needs concrete numbers from successful funds with this approach.) Congratulations to HAAS and to HSRIF.