By Ellie Winninghoff
SRI pioneer Amy Domini last week celebrated the launch of Nia Global Solutions (Nia), a new type of portfolio that takes impact investing into public stock markets.
Co-founded with Oakland-based Kristin Hull, a seasoned entrepreneurial philanthropist and impact investor, Nia consists of narrowly focused firms whose sole purpose is to solve intractable environmental or social problems. Areas of interest include renewable and efficient energy and technology, inclusive finance, environmentally friendly affordable housing that promotes community development, organic/non-GMO food products, health care, affordable transportation and educational opportunities that level the playing field.
“The piece of impact investing that resonates with me is extremely targeted outcomes,” says Domini, who has pointed out that venture capital often “disappoints” in this regard because the best financial result for venture capitalists often comes from selling a young firm to a bigger company. “Couldn’t the purchase of public stocks, rather than venture capital, meet the solution orientation [of impact investing] without this tragic outcome?”
Nia is Swahili for intention or purpose, and for Domini and Hull, it has a double entendre. Besides investing intentionally, Nia’s goal is to demonstrate that these companies can add significant value to society by solving meaningful human problems while earning a competitive return for investors. The portfolio, which is managed as a separate account, is only open to accredited investors. Minimum investment is $250,000 and the fee is 1%.
“This is uncharted territory in terms of what kind of difference we can make,” says Hull, who believes foundations should invest all their assets (not just 5%) to serve their charitable purpose. In 2007, she convinced her family of origin to place the entire $20 million endowment of the family foundation in do-good impact investments, beginning with community banks and nonprofit loan funds. The Hulls had already pulled out of the stock market in 2008 when private foundations on average lost 25% of their assets. Hull has since established the Nia Community Foundation, which is dedicated to social justice in Oakland. To date, her foundation has made 15 investments in companies that are based in Oakland or work there.
“I wanted to share the excitement I have with my private investing and make it more accessible,” she says. “If we get people conscious and excited about their investments, things are going to change.”
Nia is housed within Domini Social Investments, the home of three SRI mutual funds. But the portfolio represents a significant change for Domini, who, among other things, in l990 launched the Domini 400 Social Index (now the MSCI KLD 400 Social Index) comprised of primarily large cap companies. As of June 30, 2013, the index has outperformed the S&P 500 Index over 5, 10 and since-inception periods. And like the index, her mutual funds have mostly consisted of large cap companies. (See: Pinpointing Sustainability, Financial Advisor, Dec. 7, 2011, pls link: www.fa-mag.com/pinpointing-sustainability-9108.html.)
In contrast, about half of Nia’s 35 companies are small cap, five or six of them under $1 billion –companies that are so small that Domini wonders why they are even public. As such, Nia evaluates them using venture capital criteria–things like quality of management, market niche, what’s unique about the company’s product and ability to infiltrate that market niche, burn rate, and so on. Because venture capital has a mixed record, the idea is to let the winners run up to 11% of the total portfolio’s value rather than trimming them and limiting them to 6%, as is more traditional in the public markets.
“We are willing to let some of these companies get very big because that’s how venture capital works,” she says.
The other half of the companies in Nia’s portfolio (representing about 65% to 75% of the its market value) is more seasoned, and Nia evaluates them using more traditional stock selection criteria. Are they well priced? Do they have reasonable growth? And while quality of management and products are still important, the analysis consists of looking more at the company’s history and how successful it has been at accomplishing its goals. These stocks are limited to 6% of the portfolio’s total value.
To make it onto Nia’s buy list (now 70 companies, about half in the U.S.), companies must fill two requirements. First, among the top ten offices of the company (either top management or a member of the board), there must be a female–one. And second, there must be some acknowledgment of people and the planet and corporate social responsibility –a statement of recycling, a carbon footprint, the company’s policy with respect to its supply chain.
“[The gender requirement] sounds like a pretty pathetic line, but we lost a lot of companies including Tesla,” Domini says, who also points out that while companies outside the U.S. routinely acknowledge they have a role beyond making money for shareholders, it was particularly hard in the U.S. “I personally had to boot out about 30 companies that were in other ways such strong social stories,” she says.
Even so, Hull and Domini both wax enthusiastic about many of the companies in Nia’s portfolio:
* OraSure Technologies Inc. (NASDAQ: OSUR) has the first at-home test for HIV, “an answer to the HIV spread problem,” Domini says.
* Mitek Mobile (NASDAQ: MITK) allows consumers to bank with their dumb cell phones by using the camera function to text the bank–something that has allowed credit unions to offer these same conveniences to populations that probably don’t have Internet services at home.
* Sun-Opta (NASDAQ: STKL) is a Canadian farm-to-table food manufacturer that produces burritos under the Trader Joe label, “a pure organic play,” says Domini.
* Sanlam (JSE: SANLAM), one of South Africa’s largest financial services companies, which has been on an acquisition spree in one of the fastest growing emerging regions, and is also a black empowerment company with a 150 page corporate social responsibility report.
* Ocean Power Technologies (NASDAQ: OPTT) extracts energy from ocean waves.
Ultimately, though, Nia is about extremely targeted outcomes. In the area of solar energy, for example, the portfolio includes a firm that makes panels, another that makes inverters so the panels can talk to the grid, one that finances residential properties, another that finances industrial projects.
“You build the package that has 7 or 8 individual companies, each addressing a narrow need, which together can make solar energy universally available,” she says. “It’s a buy and hold strategy. The best moneymakers are the people that buy good companies and hang onto them. You don’t trim them here and buy them there. You go in, occupy, and hold for 25 years.”
A former investment banker, Ellie Winninghoff writes and consults about sustainable and philanthropic investment and business. Articles are linked at her blog, www.DoGoodCapitalist.com.
A version of this story appeared at Private Wealth News:
www.fa-mag.com/news/sri-pioneer-launches-fund-for-wealthy-investors-17867.html