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June 10, 2003
Catholic Institutional Investors Launch an SRI Fund of Funds Hedge Fund
    by William Baue

In order to fill a market niche, five Catholic healthcare organizations joined forces to launch an SRI fund of funds hedge fund that is available to other institutional investors.

What do you do when the marketplace does not carry a product you want? One option is to create that product yourself, and that is exactly what five Catholic healthcare institutional investors that practice socially responsible investing (SRI) have done.

"We didn't see an SRI product out there with respect to hedge funds that had a multidisciplinary approach to the marketplace," said Jesse Bean, the treasurer at Catholic Healthcare West (CHW). CHW has total investment assets of approximately $2 billion.

So Mr. Bean met with the treasurers from Catholic Health Initiatives (CHI), Catholic Health East (CHE), Catholic Health Partners (CHP), and Ascension Health in conjunction with Highland Associates of Alabama to discuss how to fill this void. The fruit of their labor, the Good Steward Fund, will enter the market as soon as the U.S. Securities and Exchange Commission (SEC) finishes reviewing it for final approval.

The fund will be available not only to the members of the advisory committee that created it, but also to other institutional investors who want a multi-strategy SRI hedge fund.

"Once this is available for distribution, I think it will garner a lot of interest," Mr. Bean told

While SRI hedge funds do exist, none use the so-called "fund of funds" approach. In a fund of funds, multiple subadvisors manage hedge funds according to the same criteria but employ their own individual investment strategies, which broadens diversification. These funds all operate under one umbrella, managed by a single fund manager.

"All five of us have had experience with a fund of funds, and although there are incremental fees associated with a fund of funds manager, we believe from an administrative standpoint that a single manager has better capabilities to oversee the various submanagers," Mr. Bean explained.

The fund manager ensures that the subadvisors apply the fund's social and environmental criteria. One of the challenges of creating the fund was agreeing to a set of social and environmental screens and other SRI strategies that would satisfy the criteria of all five of the institutions on the advisory committee.

"Many of the Catholic healthcare systems, in addition to being SRI, take it a notch higher and call their programs mission based investing, where you not only screen both negative and positive and you are an active shareholder that votes your proxies and meets with management, but you are also making community investments," said Mr. Bean.

For example, CHW's director of shareholder advocacy Susan Vickers goes beyond the SRI strategy of engaging with companies that have problematic social and environmental practices. She also applauds best practice companies so that they recognize the value of social and environmental responsibility.

"There is not a community investment component to the Good Steward Fund at this point, but that doesn't preclude it as a criteria in the future," Mr. Bean explained.

CHW allocates $50 million to community investment in below-market-rate investments and loans to not-for-profit organizations, particularly those that are under-funded. Judging from this degree of commitment from an advisory committee member-organization, it is reasonable to expect that the Good Steward Hedge Fund will incorporate community investment.

Mr. Bean noted that CHW's use of SRI strategies has served it well.

"We have 15 active managers, at least 70 to 80 percent of them have positively impacted performance," said Mr. Bean. "In other words, our portfolios have outperformed non-screened portfolios or produced returns similar to the market index."

"This shows that with a carefully thought-out program, you can accomplish both your mission responsibilities and your fiduciary responsibilities to make sure that the assets are well taken care of," Mr. Bean concluded.


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