Institutional Investor's Alpha Magazine - April 2008 - (Page 73)

likely to be unaffordable as rates were reset. Moreover, the securitized mortgage market, which was once considered a permanent source of alpha, has resulted in massive losses, affecting both credit and liquidity, and this in turn raises questions surrounding the role of leverage. Understandably, there has been a ﬂight to quality, but at the same time, we have looked to seize the opportunity in today’s market. What’s the example? Was it tough to get your advisers on board? We’ve recently invested in the WLR Recovery Fund, which takes advantage of the troubled markets but doesn’t exploit it to the detriment of individuals. Ultimately, the goal of the underlying strategy is to recover the assets, meaning to avoid foreclosed loans, but to do so in a way that keeps the homeowners in their homes by renegotiating the terms. Why does the mortgage market come so quickly to mind when you think of socially responsible investing? I tried to go a mainstream route. We’ve got a general investment consultant, and in our policy — when we do a search, let’s say for a ﬁ xed-income manager — I expect them to consider women- and minority-owned candidates, but they never do. Why should they? They are never called to question on their process or even the actual selection pool. They’re never tested. Every time there was an opportunity, they would say: “We can’t do it. They are emerging, unproven businesses.” Eventually, I said, “You know what? You’re going to have to create a new path for this group of players in the market.” You took the bull by the horns. Home ownership is the key to growing and sustaining wealth and getting out of poverty. Can you balance social responsibility with the quest for alpha? I call it the double bottom line. Doing well and doing good do not have to be mutually exclusive. We are longterm investors with long-term horizons, and we employ a range of methods to add value, from shareholder activism and proxy voting on such matters as the environment to incorporating diversity among the managers we retain to invest our pension fund assets to seeking opportunities to invest in emerging strategies such as clean technology. We invest a portion of our assets in underserved urban and other geographical areas. We’ve made investment commitments to real estate funds that have a successful track record in affordable, quality housing. A state law allows me to take into account the environmental, social and economic consequences of our investments. I view these matters as part of my ﬁduciary duty. And how do you persuade others to see it that way? Our investors themselves couldn’t focus on what we asked. Their stuff is traditional strategies: your core private equity and real estate, mezzanine strategy, leveraged buyout. They don’t focus on — DENISE NAPPIER, whether it’s a minority-owned CONNECTICUT TREASURER or women-owned ﬁrm. When AND PRINCIPAL FIDUCIARY, we launched [Connecticut CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS Horizon], I was concerned about making sure that we gave opportunities to all the protected classes, and so there were goals that money managers had to meet: 40 to 50 percent of investment was in women-owned companies, 20 percent is AfricanAmerican, 20 percent is emerging business, and another 10 percent is new-product ideas. If a fund-of-funds manager can’t meet those goals, I’d like to know why. You’ve said you can imagine a day when such initiatives are more common. “If companies we are invested in ignore the damage they are causing today, it will come back to harm them in the future.” If companies we are invested in ignore the damage they are causing today, it will come back to harm them in the future. And what harms them harms the value of our funds and could have disastrous consequences for the retirement savings of our 160,000-plus beneﬁciaries. Doing nothing is a decision in itself. How else have you tried to chase alpha without betraying your social values? As more institutional investors articulate an interest in this kind of investing, Wall Street is going to find a way to make it happen, because it’s all about the money. If we have enough investors saying, “This is where we want to put our money,” then you are going to have a new fund and ﬁ nd the talent to go and ﬁ nd value in a minority community. You’ve also spoken out against what you call artiﬁcial barriers that favor big players at the expense of smaller ones. Through the establishment of the Connecticut Horizon Fund, intended to give us more alpha across asset classes while at the same time making sure that Connecticutbased and emerging firms, as well as firms owned by women and minorities, can earn a chance to compete for a share of the treasury’s investment business. I don’t believe that if a manager doesn’t have $5 billion in assets under management, that manager should be screened out. If you are a small ﬁrm or an emerging ﬁrm, then we’re not going to hold it against you that you don’t have $5 billion or $6 billion under management. APRIL 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 73

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

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