{"id":112297,"date":"2021-04-16T14:09:21","date_gmt":"2021-04-16T14:09:21","guid":{"rendered":"https:\/\/fin2me.com\/?p=112297"},"modified":"2021-04-16T14:09:21","modified_gmt":"2021-04-16T14:09:21","slug":"a-family-opens-up-about-its-investing-mistakes","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/a-family-opens-up-about-its-investing-mistakes\/","title":{"rendered":"A Family Opens Up About Its Investing Mistakes"},"content":{"rendered":"

Families routinely struggle to make simple decisions. But when their members come from three generations and the issue involves how to invest nearly half a billion dollars, the discussions can quickly get complicated, to say the least.<\/p>\n

In this case, descendants of Nathan Cummings, who owned such popular 20th-century brands as Sara Lee, Electrolux, Shasta Beverages and Fuller Brush, were deciding whether to change the way the assets in their charitable organization, the Nathan Cummings Foundation, were invested. They were debating whether to align the portfolio\u2019s investments with the social justice values and mission of the foundation\u2019s grant-making side.<\/p>\n

\u201cWhy would we want to be killing the whales with our investments while trying to save them with our grant making?\u201d said Jaimie Mayer, a fourth-generation member of the family and board chairwoman. \u201cIf you can make the same return and be aligned for impact, would you want to do that? Of course.\u201d<\/p>\n

Family members and outside trustees agreed, and voted in 2017 to make changes in the foundation\u2019s portfolio. Four years later, it turns out that was the easy decision. What has proved to be challenging is making good on that promise and doing it in a way that satisfied the family, the investment committee and the outside financial adviser, while still earning enough returns to make grants, pay salaries and maintain the foundation.<\/p>\n

What the Cummings family is trying to do \u2014 make sure its investments are adding to and not detracting from its grant work \u2014 may seem straightforward. It has been anything but.<\/p>\n

For starters, few foundations have taken a similar route, so there was no blueprint to follow. The Cummings family is hoping that its willingness to openly discuss its mistakes will help others. As part of that, the foundation commissioned a report detailing what it learned in the past four years.<\/p>\n

Jonathan Flack, U.S. family enterprise leader at the consulting firm PwC, said recent research had found that only a quarter of families had a clearly defined plan to apply environmental, social and governance analysis to their investments or grants. The rest were simply doing what they had done in the past.<\/p>\n

He noted that getting a family to change course was not easy, especially when a foundation is no longer run by its founders. \u201cWhen families get into the third or fourth generation, what aligns them is more narrow and less deep,\u201d Mr. Flack said. \u201cYou tend to have a lot more opinions. It becomes more difficult to manage that. It\u2019s a common recurring theme.\u201d<\/p>\n

There\u2019s also a broader generational change at play. \u201cIt used to be people were invested, and then there was grant making,\u201d said B.J. Maloney, head of the Philanthropy Centre at J.P. Morgan Private Bank. \u201cOrganizations are becoming more aligned holistically. Do we have the right people on staff? Are we making money in a way that matches our values of how we\u2019re giving it away?\u201d<\/p>\n

An added layer of complexity is getting a family to agree to change course. Creating a strategy from scratch isn\u2019t easy, but scrapping the old one for a new, untried one is more challenging, said John Zimmerman, president of Ascent Private Capital Management, the high-net-worth arm of U.S. Bank.<\/p>\n

\u201cIt\u2019s more difficult and complicated than a blank slate of paper,\u201d Mr. Zimmerman said. \u201cYou need to get alignment from scratch or from an existing foundation.\u201d<\/p>\n

At the time of the board of trustees\u2019 vote to alter the Nathan Cummings Foundation\u2019s investment strategy, its $450 million portfolio was skewed toward what could be called less-progressive investments. Just under 43 percent of the money was invested in what the foundation\u2019s report, which I saw early, called \u201cno-go\u201d assets \u2014 think fossil fuels \u2014 while 44 percent was invested in assets meant to \u201cavoid harm.\u201d The amount aimed at \u201ccontributing to solutions,\u201d like providing money to historically overlooked Black businesses, was literally a rounding error: 0.1 percent, or about $450,000.<\/p>\n

Still, there was initially skepticism on the board. John Levy, a nonfamily trustee and an entrepreneur who runs a quantum computing company, Seeqc, said he was concerned that the board could not accomplish its goals through the investment products that were then available.<\/p>\n

\u201cI wanted to make sure that people who are as well intentioned as this group is can pay their salaries and make their grants, and that we can do that over many years,\u201d he said.<\/p>\n

But Ruth Cummings, who is Nathan\u2019s granddaughter and was then the chair, pushed the committee to consider how a change in investments could increase the impact of the grant making.<\/p>\n

Four years later, the \u201cno-go\u201d bucket is down to less than 5 percent; the \u201cavoid harm\u201d investments are still about 44 percent. But investments in another bucket, \u201cbenefits stakeholders,\u201d has increased considerably, to 27 percent. That\u2019s the amount put in, say, a private equity fund that supports companies that improve the quality of health care. In addition, the investments seeking to \u201ccontribute to solutions\u201d stand at nearly 19 percent.<\/p>\n

\u201cThis alignment of values and mission is one of the most appropriate and promising decisions we\u2019ve made,\u201d Ms. Cummings, 69, said. \u201cIt\u2019s already giving us a nice financial return on our investments as well as the social return we\u2019ve always been seeking.\u201d<\/p>\n

The numbers, which show progress, are only part of the story.<\/p>\n

\u201cThe hardest part for me has been how long it\u2019s taken,\u201d Ms. Mayer, 37, said. \u201cEveryone wants to know why it\u2019s taken so long. It looks from the outside that the optics are not good. We\u2019ve tried to be intentional, but it\u2019s been tough.\u201d<\/p>\n

Some of the findings in the foundation\u2019s report are not new. Investors don\u2019t have to sacrifice returns to have impact. Advisers will often steer clients toward more mainstream strategies if they are not asked to consider different metrics. And measuring impact in addition to financial returns remains a work in progress.<\/p>\n

But the family\u2019s assessment also challenges assumptions about investing to promote economic, gender and racial equity, particularly when compared with other areas of impact investing.<\/p>\n

Investing in fighting climate change, for instance, is comparatively easy because there are efforts to reduce carbon dioxide. It\u2019s also easy to measure the impact of those dollars through an accepted measure of the amount of carbon being removed from the atmosphere or never put in to begin with.<\/p>\n

But it\u2019s much more difficult to find investments that promote gender equity and to measure their effectiveness, the report found. Racial equity investing is more difficult still.<\/p>\n

A year into the transition, the foundation\u2019s outside financial adviser rejected an investment in a fund led by woman of color. That touched off a discussion about how investments had to be evaluated differently if the foundation was going to realign where it put its money.<\/p>\n

\u201cIf we could go back in time, we would have set out from Day 1 to use broader measurement metrics,\u201d said Rey Ramsey, a trustee and the interim chief executive. \u201cWe would have put a little stronger framework around that so we could be more intentional with aligning with a racial-equity lens from Day 1.\u201d<\/p>\n

The foundation now has 28 percent of its endowment invested in funds that are majority owned by women or by people of color, but only 9 percent of those funds use racial equity as a criterion in their investing.<\/p>\n

\u201cWould it be good enough to have over 50 percent of funds managed by women or people of color, or do we need to have over 50 percent of funds managed with a racial equity lens?\u201d Ms. Mayer asked. \u201cIf you could only have one, what\u2019s more important? Doing it right takes so much time.\u201d<\/p>\n

The foundation is interviewing financial advisers to see if a different firm can bring in new ideas. But keeping the family aligned and continuing to improve its investments is hard.<\/p>\n

\u201cIt\u2019s like gumbo,\u201d Mr. Ramsey said. \u201cIt tastes good in the end. But there\u2019s a lot in that pot, and you have to watch it.\u201d<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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