Saturday, February 10, 2018

It's tough to be an asset manager these days

Socially responsible investing is all in the news these days, as several large asset managers and advisors have publicly declared commitments, of one kind or another, to pressuring portfolio companies to act in socially responsible ways.

Commenters debate whether these managers genuinely believe social responsibility will improve value at portfolio companies, or whether they are trying to appeal to the preferences of clients who themselves favor socially responsible investing, either as a mechanism for improving value, or, more probably, as a matter of, essentially, “taste.”  If you’re going to invest an index fund, for example, you may as well invest in the one where you believe your dollars will also be used to push for your preferred agenda – even if little is actually being done in that direction.

The reason it’s so difficult to suss out anyone’s exact motive, of course, is that it’s tough to admit – as an asset manager or any kind of institutional investor – that you’re interested in anything other than financial returns.  Not simply because of the publicity you’ll generate, but because it’s not clear how far fiduciary obligations allow fund managers to go in pursuing social goals

(This is, of course, one of the ways in which reductionistic fiduciary duties strips out the real concerns of the ultimate humans the duties are designed to benefit).

Which is why I found the letter by Jana Partners announcing its new social activism fund – and targeting Apple – so intriguing.  In a partnership with the California State Teachers Retirement System (who is not, at least yet, an investor in the fund), Jana is urging Apple to institute stronger parental controls on the iPhone.  Now, there’s been a lot of commentary about Jana’s motivations - is Jana truly trying to profit via social activism? Or is this a loss leader so that it can cultivate relationships with kinds of institutions it needs to support its more traditional activist campaigns?– but what intrigues me are the interests of CalSTRS.

Because the letter spends most of its time talking about how better controls will ultimately prove profitable for Apple and thus Apple’s shareholders, but concludes by pointing out that the issue is “of particular concern for CalSTRS’ beneficiaries, the teachers of California, who care deeply about the health and welfare of the children in their classrooms.”

In other words, the subtext is that CalSTRS’ interest is for teachers as teachers – not necessarily for teachers as shareholders.

This is hardly the first time a pension fund has shown its hand in this way, but it does highlight how funds are even more constrained than businesses in terms of openly pursuing socially responsible goals, and the delicate tapdance they sometimes do around that fact.

https://lawprofessors.typepad.com/business_law/2018/02/its-tough-to-be-an-asset-manager-these-days.html

Ann Lipton | Permalink

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