Non-Profit Executive Portfolio: 12% Growth in 3 Years

Non-Profit Executive Portfolio: 12% Growth in 3 Years

Executive Summary

A dedicated non-profit executive approached Golden Door Asset partner, Summit Capital Partners, seeking a financial plan that not only provided long-term financial security but also reflected their deep-seated commitment to social and environmental responsibility. Confronted with the challenge of constructing a portfolio that prioritized ESG (Environmental, Social, and Governance) factors without sacrificing performance, David Park and his team at Summit Capital crafted a tailored SRI (Socially Responsible Investing) strategy. Over the following three years, the client's portfolio grew by 12%, exceeding initial projections and demonstrably aligning their values with significant financial success.

The Challenge

Sarah Miller, Executive Director of a prominent environmental conservation non-profit, approached Summit Capital Partners with a clear but complex objective: to manage her personal investments in a manner consistent with her professional dedication to social and environmental causes. Sarah, 48 years old, had accumulated approximately $650,000 in retirement savings and investment accounts over the course of her career. She expressed a growing unease about the potential for her investments to inadvertently support industries or practices that conflicted with her organization's mission and her own personal ethics.

Specifically, Sarah was concerned that her existing portfolio, which was allocated across a range of mutual funds and ETFs recommended by a previous advisor, may include holdings in companies involved in fossil fuels, deforestation, and unethical labor practices. While she understood the importance of diversification and achieving reasonable returns, she was adamant that her investments should contribute to positive societal impact, rather than inadvertently detracting from it.

Beyond ethical considerations, Sarah also harbored concerns about the long-term growth potential of her portfolio. With approximately 17 years until her anticipated retirement, she needed to ensure that her investments could generate sufficient returns to support her desired lifestyle while also accounting for potential inflation and unforeseen expenses. Her previous advisor had projected an average annual return of 6%, but Sarah felt this was insufficient to achieve her long-term financial goals, particularly when factoring in her desire to allocate a significant portion of her assets to SRI-focused investments, which she perceived as potentially carrying higher risk or lower returns. She was hesitant to withdraw funds from her portfolio and only wanted the dividend payments she already received to cover her short-term needs. Sarah expressed her fear that she would be forced to work past her desired retirement age if she couldn't figure out a way to align her investments with her values.

The Approach

David Park and his team at Summit Capital Partners embarked on a multi-faceted approach to address Sarah's challenges and achieve her financial goals. This involved a thorough assessment of her existing portfolio, a deep dive into her values and priorities, and the construction of a customized SRI investment strategy.

1. Values Alignment Workshop: The initial step was to conduct a comprehensive "Values Alignment Workshop" with Sarah. This session focused on identifying her specific areas of concern and the types of companies or industries she wanted to actively avoid or support. The team discovered that Sarah prioritized investments in renewable energy, sustainable agriculture, companies committed to diversity and inclusion, and organizations promoting environmental conservation. She wanted to avoid companies with a history of environmental pollution, human rights violations, or involvement in the production of firearms or tobacco.

2. Portfolio Deconstruction and Analysis: Next, Summit Capital Partners meticulously deconstructed Sarah's existing portfolio, analyzing the underlying holdings of each mutual fund and ETF. Using tools like Morningstar Direct, they identified companies within the portfolio that clashed with Sarah's values. This involved examining ESG ratings, company disclosures, and independent research reports to assess each company's performance on environmental, social, and governance factors. The analysis revealed that approximately 30% of her existing portfolio was invested in companies that directly contradicted her stated values.

3. SRI Investment Strategy Development: Armed with a clear understanding of Sarah's values and the shortcomings of her existing portfolio, the team developed a customized SRI investment strategy tailored to her specific needs and risk tolerance. This strategy involved a combination of negative screening (excluding companies that do not meet her ethical standards) and positive screening (actively seeking out companies that demonstrate strong ESG performance). The team used a globally diversified approach, allocating investments across various asset classes, including stocks, bonds, and alternative investments, to mitigate risk and maximize potential returns.

4. Ongoing Monitoring and Reporting: To ensure that the portfolio remained aligned with Sarah's values over time, Summit Capital Partners implemented a robust monitoring and reporting system. This involved regularly reviewing the portfolio's holdings, tracking ESG performance, and providing Sarah with detailed reports that highlighted the positive impact of her investments. The team also committed to ongoing communication and collaboration with Sarah, ensuring that she was informed about any changes in the market or her investment strategy.

Technical Implementation

The technical implementation of the SRI strategy relied heavily on data-driven analysis and advanced screening tools.

1. ESG Data Integration: Summit Capital Partners integrated ESG data from leading providers such as Morningstar Sustainalytics and MSCI ESG Research into their investment decision-making process. This allowed them to access comprehensive ESG ratings, research reports, and impact metrics for thousands of companies worldwide.

2. Portfolio Screening with Morningstar Direct: The team utilized Morningstar Direct's portfolio screening capabilities to identify investments that met Sarah's specific ESG criteria. They created custom screens based on her stated values, excluding companies with low ESG ratings or involvement in specific industries. The screening process also considered financial metrics such as profitability, growth potential, and valuation to ensure that the portfolio remained financially sound.

3. Impact Measurement and Reporting: To quantify the positive impact of Sarah's investments, the team used tools to measure key impact metrics such as carbon footprint, water usage, and waste generation. This allowed them to demonstrate the tangible benefits of her SRI strategy and provide her with regular reports that highlighted the positive impact of her investments on the environment and society. They were able to show her that the portfolio was effectively diverting capital from harmful activities and directing it toward companies that were contributing to a more sustainable future.

4. Risk Management: The SRI strategy was implemented with a strong focus on risk management. The portfolio was diversified across a range of asset classes and sectors to mitigate the impact of any single investment on overall performance. The team also conducted regular stress tests to assess the portfolio's resilience to market downturns and unexpected events. The maximum drawdown for the portfolio was targeted at below 10% during any given year.

Results & ROI

The implementation of the SRI strategy yielded significant positive results for Sarah, both financially and ethically.

• Portfolio Growth: Over the three-year period, Sarah's portfolio grew by 12%, from $650,000 to $728,000. This represents an average annual return of 4%, surpassing her previous advisor's projections. While this wasn't significantly above average, given the specific requirements, Sarah was impressed with the results.

• Values Alignment: The new portfolio was 100% aligned with Sarah's values, with no investments in companies that contradicted her ethical standards. This provided her with peace of mind and a sense of satisfaction knowing that her investments were contributing to positive social and environmental impact. The team was able to reduce her portfolio's carbon footprint by 45%.

• Reduced Risk: By diversifying across a range of asset classes and sectors, the SRI strategy helped to reduce the overall risk of the portfolio. The portfolio experienced lower volatility compared to her previous investments, providing greater stability and security during market fluctuations.

• Increased Engagement: Sarah became more engaged and informed about her investments, taking an active role in shaping the portfolio's direction. The ongoing communication and reporting provided her with a clear understanding of the positive impact of her investments and empowered her to make informed financial decisions.

• Enhanced Financial Confidence: The successful implementation of the SRI strategy and the positive financial results instilled greater confidence in Sarah's financial future. She felt more secure knowing that her investments were aligned with her values and generating sustainable growth. She has since recommended Summit Capital Partners to several other non-profit executives.

Key Takeaways

• Values-Based Investing Can Deliver Competitive Returns: This case study demonstrates that it is possible to align investments with personal values without sacrificing financial performance.
• Thorough Values Assessment is Crucial: A deep understanding of the client's values and priorities is essential for developing a successful SRI strategy.
• Data-Driven Analysis is Key: Leveraging ESG data and advanced screening tools can help advisors identify investments that meet specific ethical criteria.
• Transparency and Communication Build Trust: Open communication and regular reporting can help clients stay engaged and informed about their investments.
• Niche specialization, such as working with nonprofit executives, can provide a competitive advantage for RIAs.

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