Overview of Values-Aligned Investment Framework

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As promised in my May blog post, I will now elaborate on the foundation’s proprietary Values-Aligned Investment (“VAI”) framework by walking through the below diagram which portrays how we view the foundation’s investment portfolio and categorize the different types of investment holdings.

The portfolio is comprised of two overarching buckets: Classic Investments and VAIs. Classic Investments consist of traditional holdings, such as shares of Google or a corporate taxable bond, which we only track the financial return. This article will focus on the second and unconventional bucket, VAIs, which we track both a financial return and non-financial return (e.g. impact return, social return, environmental return, etc.).

Within VAIs, there are three groupings: zero-rate investments (i.e. grants) produce no return, below-market investments (e.g. Program-Related Investments or PRIs) yield subpar returns and market-rate investments generate competitive returns. I will dedicate my next blog post solely to explaining PRIs, and so for now we will focus on market-rate investments, which we classify into the following three subcategories:

  1. Socially Responsible Investments (“SRI”), or Environmental, Social and Governance Investments (“ESG”), is the broadest grouping comprised of companies that adhere to sound business practices while providing services and products that do not solely target social or environmental issues. For example, Cisco Systems is an American technology company that emphasizes environmental sustainability as evidenced by renewable energy accounting for 80% of the company’s worldwide electricity use.
  2. Impact Investments have a narrower focus than SRI/ESG investments, including companies whose core products and services exclusively address the world’s largest social and environmental problems. For instance, CT Environmental Group is a Chinese wastewater company uniquely positioned to impact the health and well-being of China’s population and its natural environment, targeting an urgent social and environmental concern provided widespread pollution has strained China’s water resources.
  3. Mission-Related Investments (“MRIs”) is the most concentrated subcategory provided it targets investments in companies whose activities are explicitly aligned with the foundation’s unique mission. Provided education is one of three pillars of The Gambrell Foundation’s mission, an investment in SEEK, an Australian company that matches underserved working-class job searchers with employers and offers online training and education in an effort to address the education and training gap, is an example of a MRI for this specific foundation.

Brittany Priester

Brittany Priester

Portfolio Manager

Debunking the Myth that Values-Aligned Investments Forgo Financial Performance

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Before delving into our unique values-aligned investment (“VAI”) framework and implementation, I would like to summarize and reference additional academic studies, which further dispel the myth that one sacrifices financial performance when participating in VAIs.

CFA Institute Research Foundation in collaboration with Swiss Sustainable Finance published the Handbook on Sustainable Investments in 2017, which summarizes that “there is ample academic evidence that ESG parameters have a positive influence on the returns from financial assets.” For instance, a 2015 MSCI research report titled “Can ESG Add Alpha?” found that over an eight-year period, the ESG portfolio relatively outperformed the global benchmark by +1.1% per year.

In 2016, Barclays Research published a report titled “Sustainable investing and bond returns,” which concluded that ESG factors “can be applied to credit markets without being detrimental to bondholders’ returns.” Furthermore, bonds with a positive ESG tilt delivered “a small but steady performance benefit.” In 2018, Barclays Research expanded upon their study with an updated report titled “The case for sustainable bond investing strengthens.” The recently updated report confirmed that credit portfolios favoring bonds with high ESG ratings, while keeping all other risk factors unchanged, led to higher returns. Specifically, from July 2009 – March 2018, U.S. and European investment grade bonds with high ESG ratings consistently outperformed those with low ESG ratings. For example, in March 2018, U.S. investment grade bonds with high ESG ratings relatively outperformed by +2.4%.

Similarly, the Journal of Banking and Finance published an article in 2016 titled “The effect of social screening on bond mutual fund performance,” which compared the risk-adjusted performance of more than 100 ESG-focused fixed income funds in the U.S. and eurozone against a sample of conventional fixed income funds. The analysis concluded that over a 13-year period, the ESG funds relatively outperformed by +0.5% annually, which is a noteworthy margin for fixed income investing.

Provided the foundation does not have to sacrifice financial performance in order to participate in VAIs, we incorporated a VAI sleeve into the foundation’s portfolio in 2018. We believe that the foundation’s corpus can be invested in such a way to generate both a competitive financial return while simultaneously achieving a positive impact, or non-financial return.

Brittany Priester

Brittany Priester

Portfolio Manager

Highlights from the 16th Mission Investing Institute hosted by Mission Investors Exchange

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As previously mentioned, we are members of Mission Investors Exchange, and so I attended their Mission Investing Institute in March of this year, which was extremely informative and altered my mindset in a few ways. For instance, Several speakers stated that “all investing is impact investing.” In other words, every investment has an impact, it is a matter of whether or not investors examine the impact of investments not specifically categorized as “impact investments.”

My greatest takeaway from the conference was dispelling the myth that impact investments sacrifice portfolio performance. William Burckart, President and COO of The Investment Integration Project (“TIIP”), justified this claim by showing the relative outperformance of impact investments, as represented by the MSCI KLD 400 Social Index (+10.7%), compared to the broad market, S&P 500 Index (+10.2%), on an annualized basis from May 1, 1990 to December 31, 2018. TIIP’s website references a 2015 Harvard Business School working paper titled “Corporate Sustainability: First Evidence on Materiality,” which concluded that “firms with strong ratings on material sustainability issues have better future performance than firms with inferior ratings on the same issues.”

Daryn Dodson, Founder and Managing Director of Illumen Capital, shared a related and yet unique perspective. Illumen is “the world’s first private equity firm dedicated to reducing implicit bias across financial markets to unlock returns and impact,” according to the Stanford Graduate School of Business. Daryn pointed to a McKinsey research report titled “The case for behavioral strategy,” which concluded that companies making unbiased strategic decisions improve return on investment by 6.9% as compared to those companies making biased strategic decisions. Specifically, a company can counter social biases by stimulating genuine debate, which requires diversity in the backgrounds and personalities of the decision makers. Daryn referenced this research in his argument that funds managed by a set of racially diverse managers relatively outperform funds managed by an undiversified group of managers.

In addition to learning a great deal, the institute also provided ample networking opportunities, which proved beneficial and further enhanced my research and implementation of values-aligned investments. For instance, I met the tenured Chief Investment Officer of another single-family office who also manages the portfolio for the family’s foundation, and he happily shared the foundation’s Investment Policy Statement with me, which described their unique approach to investing and portfolio construction. In my opinion it is helpful to explore relevant case studies and learn by the example of experienced and intelligent individuals.

Brittany Priester

Brittany Priester

Portfolio Manager

Values-Aligned Investing: Forging Our Unique Path

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As I previously shared, a lack of standardization exists within the Values-Aligned Investing space. So, we charged our own path and created a proprietary investment framework. The first strategic decision we encountered was whether to take a “lens” or “sleeve” approach when implementing this new investment strategy. A lens approach applies the investment strategy to the entire portfolio; whereas, a sleeve approach carves out a piece of the portfolio and applies the investment strategy solely to that piece, while leaving the balance of the portfolio unaffected. We opted for the sleeve method in order to test this new approach on a piece of the pie to ensure it is a strategic fit for the foundation. This approach is not set in stone and will surely evolve over time alongside the ever-changing investment industry.

Next, we devised a proprietary investment framework. We started by selecting the term “Values-Aligned Investments” (“VAI”) as the overarching header for the newly designated investment sleeve. We chose this terminology because it encompasses any investment that aligns with the values of the foundation. This phrasing is sufficiently descriptive while also affording us the flexibility to incorporate a range of investing styles, which we describe as investment subcategories under the VAI header. All VAI subcategories have one primary feature in common in that that they seek both a financial return and non-financial return. A financial return is a return on investment in the conventional sense. For example, a company’s stock price increases from $10 to $12, thus generating a financial return of 20%. A non-financial return is not as easily measured and can take various forms, including social, environmental, impact, etc. For instance, a company generated 16.7 TWh of renewable energy (wind, hydroelectric and solar), thus avoiding 11.8 million metric tons of CO2 emissions, and ultimately avoiding 0.03% of annual global CO2 emissions (i.e. the environmental return).

More to come on the foundation’s specific VAI subcategories in subsequent blog posts…

Brittany Priester

Brittany Priester

Portfolio Manager

Values-Aligned Investing: How Did We Get Started?

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After making the strategic decision to incorporate some form of “impact investments” into the foundation’s portfolio, I began researching the existing landscape. I quickly learned that a lack of standardization exists within this investment strategy resulting in a disconnect and confusion when comparing resources. For now, I will set this issue aside and focus on the initial steps I took when embarking on our journey as well as share some helpful resources with those of you who would like to forge a similar path.

To begin, I studied the websites of experienced impact investors. I found the below foundations to be the most informative in sharing their unique views and experiences.

Then I called the Mary Reynolds Babcock Foundation and Phillips Foundation. I gained deeper insight and answers to specific questions by interacting directly with the experienced and forthcoming leaders at these two organizations. Upon comparing my notes, I noticed one glaring similarity – both organizations highly recommended we join the Mission Investors Exchange (MIE), which provides tools and resources, motivation and association to enhance the impact investing practice of its 200+ members. We joined MIE (www.missioninvestors.org) in 2018, and it has been an important resource. I will post more on my utilization of MIE’s resources and guidance in a future article.

I read all relevant materials that I could get my hands on, including books, white papers, investment policy statements and articles. I also connected in-person, over the phone and through email with anyone who was willing to share their impact investing philosophy and best practices with me. I spent 2018 learning everything I could, and I continue to learn something new every day as my research delves deeper into an evolving investment strategy.

Brittany Priester

Brittany Priester

Portfolio Manager

Values-Aligned Investing: An Introduction

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Welcome to the investment-focused section of The Gambrell Foundation’s blog. I am Brittany Priester, and I will be your “tour guide” for investment-related matters pertaining to the foundation. In my role as the foundation’s Investment Advisor, I implement and manage the investment portfolio, which is a collection of cash, bonds, stocks, real estate, private equity, etc. I am responsible for investment policy formation, asset allocation development, manager due diligence and portfolio performance monitoring and reporting, which is fancy speak for saying that I oversee and execute all investment-related aspects of the foundation.

I bring 11 years of investment management experience to the foundation. Prior to joining the Gambrell team, I was a Portfolio Manager for Maybry McShane Family Offices, a local multi-family office, where I managed assets for family foundations, including The Gambrell Foundation. Before joining Maybry McShane, I was a Family Investment Associate with GenSpring Family Offices, a nationwide multi-family office in Charlotte, where I also managed family foundation investment portfolios. I began my career as an International Investment Analyst at Cambridge Associates, LLC, an institutional investment consulting firm in Washington, DC, where my client base exclusively comprised foundation and endowment investment portfolios.

Sally Gambrell is the foundation’s President and the only child of the founder, Sarah Belk Gambrell. In January 2018, Sally introduced the idea of impact investing to me by plopping The Impact Assets Handbook for Investors by Jed Emerson on my desk with the directive to “figure it out.” Sally first learned about the concept of impact investing when she attended Southeastern Council of Foundation’s 2016 annual meeting. Combining my professional experience in traditional portfolio management with Sally’s out-of-the-box thinking and creative vision for the future, we embarked on the journey of restructuring the foundation’s investment portfolio in 2018.

Brittany Priester

Brittany Priester

Investment Advisor