Nadja Guenster, HSRIF’s faculty advisor, described her advising style as such: “’Did you look at this factor? That factor?’ Not—‘you should invest in this company.’”
In a time where nearly all corporations appear to adopt a cause, the Fund also gives students a unique space to examine their definitions of corporate social responsibility. According to Kurtz, socially responsible investing used to be exclusion-based—no tobacco, no pornography, et cetera—but the process has become much more holistic. When deciding whether to invest, Fund principals consider corporations’ environmental, social and governance (ESG) practices.
“Most companies do not only have strengths or weaknesses, but a combination,” Guenster wrote in an email. “Then, you need to weigh: is a certain strength more important for you than a certain weakness? How does the firm compare to its peers?”
‘PITCH SESSIONS CAN BE QUITE HEATED’
Another puzzle: should you invest in a company based on an industry’s merits, or based on its merits relative to other companies in the same industry? As an example, Maa brought up mining. Historically, mining companies have had a negative impact on the environment, but some companies within the industry have great records when it comes to international development.
“Obviously, pitch sessions can be quite heated,” Mackness said.
Guenster estimated that while a third of the debates center around the financial side of things, two-thirds of them center around social responsibility. She said the diversity of Haas’s student population gives the debates a cultural component. Within the fall 2012 entering class, 34 percent of full-time MBA candidates are U.S. minority students, and 37 percent of candidates are international students representing 38 different countries, according to Haas’s official website.
“The Fund has never had a recipe book,” Kurtz said. “It has been about the students’ collective judgment.”
FUND FACES ADDED CHALLENGE OF 100% TURNOVER
Of course, since principals handle real money, the investments can’t just be socially responsible. They need to pay off. The portfolio is relatively small, so principals have the freedom to focus on fundamental analysis rather than relying on benchmarking the way professional asset managers might. Principals also began using a new portfolio-monitoring regimen in 2012.
“I think the students can be commended for their success in spite of the 100 percent turnover rate,” Mackness said, citing the constant change as the Fund’s biggest challenge. During spring semesters, 12 students manage the Fund, but during fall semesters, incoming students are too busy with core courses to replace the recent graduates—thus, only six students are in charge.
That particular challenge has been addressed through mentorship. This past spring, second year principals gave first years a four-week introduction that involved presentations and hands-on training. One of this year’s day-long workshops was devoted to a discussion of HSRIF’s mission between older and newer principals.
The turnover rate aside, there’s another notable difference between HSRIF and most real-world funds.
‘WE DO HAVE LESS SKIN IN THE GAME’
“Fundamentally, we do have less skin in the game,” Maa said. “Our investment process mirrors that of a real-world fund, but at the end of the day, this isn’t our full-time job. The alumni who donated the money trust that we’ll make the right decisions, and we put a lot of work into doing so.”
As the Fund grows, however, the stakes are likely to get higher. “Probably what will happen is that there will be extreme debate on the balance of financial versus ESG measures,” Mackness said. “We need to make sure we’re not leaning too much on financials.”
Even if HSRIF doesn’t perfectly reflect the reality beyond university walls, it has helped former principals get fairly real-world opportunities. Emilie Deng’s time as a principal took her all the way to the SRI Conference on Sustainable, Responsible Impact Investing in Colorado Springs; she was the only student representative at the conference. Former principals have gone on to employers such as Deloitte Consulting, Dodge & Cox and Goldman Sachs.
Having graduated this spring, Maa will be working at a private equity firm that invests in environmentally responsible companies. He’ll also be returning to HSRIF as a member of the Investment Advisory Committee. “The fund was a fantastic chance to figure out what I wanted out of business school,” he said. “I enjoyed it so much and thought it would be useful to have continuity.”