Monday, January 30, 2006

Social Investing

This article is highly critical of the Yucaipa Corporate Initiatives Fund, noting that the fund invested in Sean John and in Al Gore's Current Television:
"Meanwhile, the workers whose pensions have been invested in Yucaipa are getting a terrible deal. According to CALSTARS, California teachers have already committed $61.9 million of the $150 million that they promised Yucaipa. As of last March 31, three years after the venture started, they'd seen a grand total of $837 come back to them. Overall, the rate of return since the funds launched have been a loss of 12.1 percent.

CALPERS has not done much better. After pouring more than $116 million into various Yucaipa ventures since 2002, it's seen a return of $55,963.

At the same time, Yucaipa is also collecting hefty fees for managing the pension funds' investments — more than $3 million a year from CALPERS, and $3.5 million a year from the New York Common Retirement Fund. How much of this ends up in Bill Clinton's pocket is anybody's guess. He's not disclosing his fees. And why is Sen. Hillary Clinton, who appears to be so concerned about the state of our pension systems, silent about this?"

But, I think this article is sort of WRONG. Returns for private equity firms often take 5-6 years to realize. And this is just an example to me of how people are uncomfortable of multiple motivations in an organization or even the concept of for-profit social investing. It's like you can't do both, you can't make a profit (e.g. make a return on investment) and do something good. People feel uncomfortable with that, it has to be one or the other. I think that's so unfortunate though. Why does it have to be so divided?

In addition, the fund wouldn't have the level of talent it does have if it didn't charge the fees it charges. It goes back to the whole conflict regarding Harvard Management Company and Jack Meyer. Talent costs money. Professionals who know what they are doing cost money. Is there something wrong with that?

It's interesting that in Singapore, government officials are paid in ilne with levels paid to private sector CEO's. Honesty and efficiency are trademarks of doing business in Singapore, could the fair compensation have something to do with it?