Monday, 29 August 2016
Last updated 2 days ago
Nov 17 2006 | 12:33pm ET
Boston-based Civic Capital Group is among a growing number of investment firms that aim to create positive change in society, while at the same time generating high returns for investors. Three years ago, the firm launched the Civic Capital Group Fund I, a conservative long/short hedge fund that invests in companies that actively address social and environmental problems.
“At its core, if you tie into the big themes of the world at the moment, that’s where you’re going to get the bang,” says Civic Capital President John Desantis. “If you look around the world, with the global climate situation and the energy situation, this is a major defining investment scenario.” Civic Capital invests in Standard & Poor’s 500 companies involved in water purification, microfinance, nutrition and ethanol, among other things. But Desantis insists that it is not a green fund because its philosophy extends beyond concerns for the environment.
The firm does not use a negative screening process, which has typically been at the heart of socially responsible investing strategies. Instead, the founders take a more proactive approach, enlisting the advice of experts including David Farmer, dean of the University of Rhode Island Graduate School of Oceanography, who serves as a sounding board on topics such as desalinization and global warming.
Desantis developed the idea for the fund while managing separate accounts. “I noticed there was a disconnect between what investors’ goals were and what we were doing [in managed accounts],” he says. “I saw an opportunity to create a product that would be much more exposed to positive change.”
Like many of its counterparts, the fund goes long on the “good” firms—such as General Electric, which has recently adopted a green agenda called Ecomagination, ICICI Bank, an Indian bank engaged in microfinance lending, and Colorconnetics, which makes energy efficient lighting—and it shorts the “bad” ones. Past shorts have included Krispy Kreme and Tootsie Roll Industries.
Investors in the fund are high-net worth individuals and family offices, but with the three-year mark behind them, Desantis says interest from the institutional community is growing. Obstacles, however, still exist. For one, SRI is essentially value investing, considered a no-no by some institutional investors.
Additionally, many sophisticated investors experiment with socially responsible investing through funds of funds, rather than single-manager hedge funds, explains Phil Matyi, chief financial officer and chief operating officer at Civic Capital Group.
The fund, which Desantis describes as “very conservative” is structured like a traditional hedge fund. The minimum investment is $1 million and fees are 1% for management and 20% for performance. Returns on the fund, which has less than $100 million in assets, have been in the high single digits since inception, though Desantis declines to give specific numbers.