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June 10, 2003
Catholic Institutional Investors Launch an SRI Fund of Funds Hedge Fund
by William Baue
In order to fill a market niche, five Catholic healthcare organizations joined forces to launch an
SRI fund of funds hedge fund that is available to other institutional investors.
SocialFunds.com --
What do you do when the marketplace does not carry a product you want? One option is to create
that product yourself, and that is exactly what five Catholic healthcare institutional investors
that practice socially responsible investing (SRI) have done.
 "We didn't see an SRI product out there with respect to
hedge funds that had a multidisciplinary approach to the marketplace," said Jesse Bean, the
treasurer at Catholic Healthcare West
(CHW). CHW has total investment assets of approximately $2 billion.
So Mr. Bean met
with the treasurers from Catholic
Health Initiatives (CHI), Catholic Health
East (CHE), Catholic Health Partners
(CHP), and Ascension Health in
conjunction with Highland Associates of Alabama to discuss how to fill this void. The fruit of
their labor, the Good Steward Fund, will enter the market as soon as the U.S. Securities and
Exchange Commission (SEC) finishes reviewing it for final approval.
The fund will be
available not only to the members of the advisory committee that created it, but also to other
institutional investors who want a multi-strategy SRI hedge fund.
"Once this is
available for distribution, I think it will garner a lot of interest," Mr. Bean told
SocialFunds.com.
While SRI hedge funds do exist, none use the so-called "fund of funds"
approach. In a fund of funds, multiple subadvisors manage hedge funds according to the same
criteria but employ their own individual investment strategies, which broadens diversification.
These funds all operate under one umbrella, managed by a single fund manager.
"All five of
us have had experience with a fund of funds, and although there are incremental fees associated
with a fund of funds manager, we believe from an administrative standpoint that a single manager
has better capabilities to oversee the various submanagers," Mr. Bean explained.
The fund
manager ensures that the subadvisors apply the fund's social and environmental criteria. One of
the challenges of creating the fund was agreeing to a set of social and environmental screens and
other SRI strategies that would satisfy the criteria of all five of the institutions on the
advisory committee.
"Many of the Catholic healthcare systems, in addition to being SRI,
take it a notch higher and call their programs mission based investing, where you not only screen
both negative and positive and you are an active shareholder that votes your proxies and meets with
management, but you are also making community investments," said Mr. Bean.
For example,
CHW's director of shareholder advocacy Susan Vickers goes beyond the SRI strategy of engaging with
companies that have problematic social and environmental practices. She also applauds best
practice companies so that they recognize the value of social and environmental responsibility.
"There is not a community investment component to the Good Steward Fund at this point, but
that doesn't preclude it as a criteria in the future," Mr. Bean explained.
CHW allocates
$50 million to community investment in below-market-rate investments and loans to not-for-profit
organizations, particularly those that are under-funded. Judging from this degree of commitment
from an advisory committee member-organization, it is reasonable to expect that the Good Steward
Hedge Fund will incorporate community investment.
Mr. Bean noted that CHW's use of SRI
strategies has served it well.
"We have 15 active managers, at least 70 to 80 percent of
them have positively impacted performance," said Mr. Bean. "In other words, our portfolios have
outperformed non-screened portfolios or produced returns similar to the market index."
"This shows that with a carefully thought-out program, you can accomplish both your mission
responsibilities and your fiduciary responsibilities to make sure that the assets are well taken
care of," Mr. Bean concluded.
©
SRI World Group, Inc. All Rights Reserved.
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