What better way to give MBA and undergraduate business students practical knowledge of investments and fund management than handing them oversight of millions of dollars? They’ve been doing it at the University of Minnesota Carlson School of Management for years, and the students have done a bang-up job, growing the Carlson Funds Enterprise to its current size of nearly $40 million split between fixed-income and equities funds.
Now, in response to the shifting winds of finance, the CFE and its handlers are facing a new twist: how, and where, to invest with an eye to social responsibility.
There are hundreds of student-run funds like the CFE at B-schools across the United States. But beginning this spring, Carlson’s fund became unique in a key way by signing on to the Principles of Responsible Investment (PRI), a set of six guidelines for incorporating environmental, social, and governance (ESG) issues into investment strategies. The CFE is the first student-run fund in the U.S. to become a PRI signatory.
“It really is an idea that has firmly taken root within the U.S. investment business,” says Susanna Gibbons, program director for Carlson’s Fixed-Income Fund. “So as a fund that is responsible for trying to educate students, we thought we really need to start thinking about how to incorporate something, whether it’s the PRI or some other type of ESG thinking, into what we work with the students on in managing the portfolios day to day.”
MOMENTUM TOWARD SOCIALLY RESPONSIBLE INVESTING GROWING
The Fixed-Income Fund and the Growth Fund are each 10-credit, three-semester courses in the CFE, which was launched in 1998. Both help manage live portfolios with investments made by Twin Cities-area companies, including several in the Fortune 500; in the Fixed-Income Fund, which currently is about $19.5 million, MBA and select undergrad students gain experience by assuming analyst responsibilities for various sectors within the fixed-income market, such as treasuries and mortgage-backed securities. Since its inception the Fixed-Income Fund has performed at greater than 4%, according to the CFE website.
But it’s not enough anymore to just make money — investors want to do it the right way, Gibbons says, with maximum positive, or at least minimal negative, social impact. And that’s affecting how B-schools teach money management. You see it at UC-Berkeley with the Haas Socially Responsible Investment Fund, and now you see it at Carlson.
As signatories to the responsible investing principles, the CFE will report yearly to PRI to show that the funds are acting consistent with the principles. More importantly from an educational perspective, Gibbons says, Carlson will be offering a new focus on aspirational — that is, non-prescriptive — commitment around integrating ESG considerations into financial analysis.
“One of the things that we’ve really tried to do with the enterprise funds is, we want what we are working with the students on to be relevant to what is going on in the industry overall,” says Gibbons, who formerly led RBC Global Asset Management’s fixed-income credit research team. “Having come recently from industry myself, I identified one of the most significant trends in asset management currently as the shift in investor interest toward socially responsible investing, or investing strategies that incorporate ESG principles into their management of other people’s assets.”
The momentum toward socially responsible investing has been growing for a decade, Gibbons says. Some of Carlson’s own investors are signatories to the PRI, while others “are interested in what’s going on, because they are starting to get pressure from their clients. Really it’s been a slow evolution that’s gained a significant amount of momentum in the industry over the past five years, and particularly in the U.S.”
MAKING THE CASE
Rebecca Blumenshine, Carlson MBA ’17, called her shot. Interviewed by P&Q for our story, “Meet the Minnesota Carlson Class of 2017,” Blumenshine, a Minneapolis native, said that among the things she hoped to achieve before graduating, “I want to help Carlson grow its leadership role in supporting sustainable and socially responsible business endeavors, both locally and globally.”
That she has done. Blumenshine, a dual-degree student also seeking a master’s in public policy, was instrumental in getting Carlson to embrace the PRI. For her, it was just common sense; for the CFE’s investors, there was still a bit of convincing to do.
“It’s not that everyone naturally was inclined to do it — we had to make the case, we had to do our research, we had to be prepared,” Blumenshine says. “But then once we did that, we could proceed with doing the PRI because we had our investors on board. I don’t know what other schools’ structures are, maybe it’s not as much set up like a business. The fact that we are based on outside investors, it was interesting for me to go through the process of essentially making the case and getting all our stakeholders aligned around this initiative. We made the business case and now we can move forward.”
Adds Gibbons: “I think there was almost a capitulation toward acceptance of the importance of incorporating ESG principles into your investment strategy. And so some of the research that Rebecca put together a year ago in terms of discussing with our own board the incorporation of the principles, shows that the U.S. is now the fastest-growing part of the world in terms of acceptance of the PRI.”
‘EXCITING TO SEE THERE’S A GROWING INTEREST AMONG CARLSON STUDENTS’
Two years ago, Blumenshine told P&Q that one of Carlson’s main draws was its Enterprise program, a 4-credit elective that feels, to many, like an essential part of the school’s MBA. Besides the Funds Enterprise, the program offers a choice between three other paths: Brand, Ventures, and Consulting. You could call Enterprise a capstone to the MBA, Blumenshine says, except that it lasts two-and-a-half semesters.
For her, the choice of which Enterprise path to take was easy. “The other three are much more one-off consulting-based projects,” she says. But Funds is an opportunity to manage real money, with all the excitement and risk that that entails, in an ongoing way. And Blumenshine also saw an opportunity to change the program itself, a chance “as an MBA to engage in some unanswered, complex questions that are going on in the finance sector right now, in a hands-on, applied way.”
For students, certainly, the interest is there, she says. “It’s been exciting to see there’s a growing interest among Carlson students. In my class, the outgoing class, there were a few of us who were really excited about this, and then the incoming class we have even more. Twenty-five percent of MBA students are working specifically on ESG strategy,” says Blumenshine, who has accepted a post-graduation job at EcoLab, a Fortune 500 water, hygiene, and energy technologies and services company based in St. Paul, Minnesota. “And we have them from all different types of backgrounds.”