Sunday, May 22, 2011
Monday, November 2, 2009
Saturday, May 10, 2008
"For a couple in their mid-40s, the Obamas' investment holdings are arguably too conservative. One of the single largest chunks of their money (between $US150,000 and $US350,000 as of year-end 2006) was invested in the Vanguard Wellington Fund, which has about 65 per cent in stocks, 33 per cent in bonds, and 2 per cent in cash. Obama reportedly sold this fund after learning it was invested in Schlumberger, a French oil-field-services company that does business in Sudan. He put that $US180,000 in proceeds into the Vanguard FTSE Social Index Fund, a socially responsible fund that invests in large and midcap stocks. The Obamas had another $US100,000 to $US250,000 in Vanguard's Wellesley Fund, which allocates 60 per cent of its money in high-quality bonds. Considering the Obamas have more than 20 years to go before retirement, many financial advisers would tell them to be more aggressive and increase their stock exposure to 80 per cent of their portfolio."
Monday, July 23, 2007
On July 20, 2007, "SEC Chairman Christopher Cox issued the following statement concerning disclosures filed with the Commission concerning public company activities in countries that the U.S. Secretary of State has determined to have repeatedly supported terrorism:
Since the SEC added to our Internet site a web tool that permits investors to obtain information directly from company disclosure documents about their business interests in countries the U.S. Secretary of State has designated 'State Sponsors of Terrorism,' the site has experienced exceptional traffic. Between June 25, when the web tool was unveiled, through July 16, visitors have 'hit' material posted on the site well over 150,000 times. Iran was the country most frequently clicked on, followed by Cuba, Sudan, North Korea, and Syria. Those who went to a country list most often clicked through to the text of companies' own disclosure (in the case of Iran, they did so overwhelmingly), indicating that the disclosures were allowed to speak for themselves."
The Chairman went on to add that, despite the unqualified success of the effort, the SEC is
"temporarily suspending the availability of the web tool while it undergoes reconstruction." Further SEC staff is "considering whether the use of interactive data tags applied by companies themselves could permit investors, analysts and others to easily discover this disclosure without need of an SEC-provided web tool at all. In the interim, the companies' disclosure regarding their business contacts in the five nations will continue to be available through the SEC's EDGAR database, and findable using our new full-text search capability."
We fully supported the SEC's efforts, have called for the use of interactive data tags in exactly this way (page 17), and are disappointed to see the site go down. As the Chairman noted,
"The exceptional public interest that has been demonstrated in reading company disclosures on this topic indicates that it is an important subject for investors. Federal law and SEC regulations will continue to require public companies to report on their activities, if material, in a country the Secretary of State has formally determined to be a State Sponsor of Terrorism. Our role is to make that information readily accessible to the investing public, and we will continue to work to find better ways to accomplish that objective."
The effort reinforces our view that by showing a willingness to address, in a timely and creative manner, critical issues affecting his Agency, Chairman Cox is the single most competent appointment made by the Bush Administration. The Terrorism disclosure effort was incredibly entrepreneurial and successful, both highly unusual for this Administration. We can only surmise that business interests on both sides of the issue (those doing business in States designated as sponsors of terrorism, and those selling information about those doing business in States designated as sponsors of terrorism) combined to get the pages taken down. This does not bode well for efforts to enhance shareholder democracy.
Lets hope this service comes back on-line soon.
Thursday, July 19, 2007
The creation of the focus list and the required methodology suggest that Goldman, like other firms, has come to see the value of incorporating a “socially responsible” framework into traditional investment analysis. While we applaud Goldman's incorporation of the ten principles of the UN Global Compact into an investment analysis framework and the firms’ tacit recognition of “socially responsible” investing, we feel the firm is ethically and ethnically challenged, and that these factors may negatively influence both the methodology and the composition of the GS Focus list. We explain our reasoning below.
We question a central thesis of the report: that Goldman has developed a superior ESG evaluation tool that allows investors, thru the firm, to “pinpoint sustainability and emerging players.”
Major Wall Street investment banks have a history of manipulating financial data in order to support business activities and to maximize short term profits. Consider the following:
• On April 28, 2003, every major US investment bank, including Merrill Lynch, Goldman Sachs, Morgan Stanley, Citigroup, Credit Suisse First Boston, Lehman Brothers Holdings, J.P. Morgan Chase, UBS Warburg, and U.S. Bancorp Piper Jaffray, were found to have aided and abetted efforts to defraud investors. The firms were fined a total of $1.4 billion dollars by the SEC, triggering the creation of a Global Research Analyst Settlement Fund.
• On September 4, 2003, Goldman Sachs admitted that it had violated anti-fraud laws. Specifically, the firm misused material, nonpublic information that the US Treasury would suspend issuance of the 30-year bond. The firm agreed to “pay over $9.3 million in penalties.”
• On April 28, 2003, Goldman Sachs was found to have “issued research reports that were not based on principles of fair dealing and good faith .. contained exaggerated or unwarranted claims.. and/or contained opinions for which there were no reasonable bases.” The firm was fined $110 million dollars.
• On January 25, 2005, “the Securities and Exchange Commission announced the filing in federal district court of separate settled civil injunctive actions against Morgan Stanley & Co. Incorporated (Morgan Stanley) and Goldman, Sachs & Co. (Goldman Sachs) relating to the firms' allocations of stock to institutional customers in initial public offerings (IPOs) underwritten by the firms during 1999 and 2000.”
In the report, Goldman notes that “Corporate governance is a key focus of investors, securities regulators and stock exchanges in recent years in the wake of corporate accounting scandals.” No mention is made of the behavior noted above.
The firm, fined $119.3 million by the SEC for various crimes (see: http://www.sec.gov/news/press/2002-179.htm and http://www.sec.gov/news/press/2003-107.htm) received a $75 million dollar New Markets Tax Credit (NMTC) award. In the NMTC Program application, firms must attest to the following:
"The Applicant and its officers, directors, owners, partners, and key employees or any other person that Controls the Applicant:
(a) have not within a three-year period preceding the date of this Allocation Application been indicted, charged with or convicted of, or had a civil judgment rendered against them for commission of fraud or a criminal offense;
(b) have not within a three-year period preceding the date of this Allocation Application been indicted, charged with or convicted of, or had a civil judgment rendered against them for violation of Federal or State antitrust statutes or commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, or receiving stolen property;
(c) are not presently indicted for or otherwise criminally or civilly charged by a governmental entity (Federal, State, or local) with commission of any of the offenses enumerated in paragraphs 10(a) and 10(b) of this certification;
(d) have not within the three-year period preceding the date of this Allocation Application been the subject of any formal investigation or disciplinary proceeding by a government agency, regulatory body, or professional association in connection with any matter; and
(e) have not within the three-year period preceding the date of this Allocation Application been found liable in any civil legal action involving creditor's claims of greater than $500,000."
We believe GS New Markets Fund - owned by Goldman Sachs Group, Inc., technically violated this certification, and was, therefore, ineligible for a NMTC award. Even if the firm was eligible to receive the award, the allocation of federal tax credits to a firm fined $119.8 million makes a mockery of penalties assessed under the SEC’s "settlement with Goldman Sachs to resolve issues of conflict of interest at brokerage firms."
From an ethical standpoint, the firm has repeatedly engaged in behavior that would cause a prudent person to question its objectivity and fairness. We note that a smaller firm engaging in similar conduct would have been severely sanctioned by the market. Goldman has escaped meaningful sanction, however.
The report states that “Employee indicators for pay, productivity and gender diversity are universal. We measure companies’ ability to attract, retain and motivate employees by assessing employee compensation and productivity, health and safety performance and gender diversity.” By measuring only gender diversity, Goldman’s ESG framework reflects a troubling racial bias and lack of true diversity. This, in turn, reflects practices at the firm: according to a study by Chicago United, Goldman has one of the least diverse Boards of any company in the Fortune 100. This lack of racial diversity, we feel, influences methodological matters governing the CS Sustain list. Given demographic trends, gender diversity is a necessary but insufficiently robust, just or fair sole criterion to use as “a proxy for companies’ ability to attach and retain highly skilled staff from all backgrounds.” This is a frankly bigoted approach to the issue that is consistent with the current global trend toward racial animus. The immigration “debate” in the U.S. and the active targeting of racial minorities for fraudulent loans are other indicators of this trend.
Origin of the approach
The report issued announcing the creation of the Focus list states that “..the poor performance of indexes such as Dow Jones Sustainability Index and FTSE4Good (both -10% since 2000) suggests that a simplified approach of picking stocks on an ESG basis alone will not lead to stock market outperformance.” We know of no major SRI/ESG mutual fund that selects stocks based on social, or ESG factors alone.
The report goes onto state that “Analysis of the environmental, social and governance issues facing companies is not new; socially responsible investors (SRI) and NGO’s have assessed companies on ESG metrics alone for the better part of three decades since the early 1970s. However, the integration of ESG with industry analysis and financial returns is a relatively new conceptual approach. SRI indices were originally designed to separate socially responsible and sustainability-focused companies from laggards on the basis of social, environmental and/or ethical screens alone; ESG analysis was separate from industrial and financial analysis.” This is incorrect on two counts. Economic development projects started or managed by Dr. Martin Luther King, like the Montgomery Bus Boycott and the Operation Breadbasket Project in Chicago, established the model for future socially responsible investing efforts. In that project King combined ongoing dialog with boycotts and direct action targeting specific corporations. Thus, assessing companies based on ESG metrics goes back to December 1, 1955, when the modern age of socially responsible investing began.
The second error relates to the integration of financial and social data. We first outlined this approach in 1991, when we created the Fully Adjusted Return™ methodology. Further, in 2001 and 2002 we participated in the SPI-Finance Project, linked to the Global Reporting Initiative and “undertaken by a group of financial institutions from Australia, Germany, the Netherlands, South Africa, Switzerland and the UK. “ We discussed the integration of financial and social performance measures for the financial services industry, based on our work creating the Fully Adjusted Return methodology.
Goldman’s work fall into this approach, first developed to aid in the selection of women and minority-owned banks, and takes it to a broader stage, but the core technique remains the same. Our concern is this: given the ethical and ethnic issues raised above, and based on our fifteen years of experience in the creation and application of SRI/ESG tools and techniques, we feel the application of this technique requires a fully objective third party, with no actual or potential conflicts of interest.
National bias is racial bias
The report discovers “country bias with regards to environmental, social and corporate governance performance.” We believe this is due to Goldman’s narrow and limited perspective on SRI/ESG issues. Excluding South Africa, no African countries are on the list. Excluding Japan, no Asian markets are included. Excluding Brazil, no Latin markets are included. Thus, areas representing the majority of the world’s population are excluded. This makes the report a non-minority (non-people of color) company and country exercise. This is consistent with the flawed diversity framework noted above. Certainly, data and capitalization issues represent a challenge, but given the firm’s reach and resources, these geographic regions could be included. Doing so sets the stage for the future and allows for a more realistic and consistent set of long term (50 year) forecasts, since at some point these regions will join the capital markets of the world.
Constructing the list
The GS Sustain Focus list contains “only companies for which we have completed our ESG analysis and companies under coverage in emergent industries.” While we believe it is important to know which companies on the list Goldman has current investment banking relationships with, a more important metric concerns Goldman’s strategic plan for future relationships. Because many of the industrial sectors and companies featured in the report are new (solar power, biotechnology) the report may be used to curry favor with potential future industries and clients. We note that being on the GS Focus list will have added value as institutional investors come to see the list as valuable. If SRI/ESG and sustainability issues have grown in importance, they have done so because they are critically important to the future of democratic capitalism and despite active opposition by most Wall Street firms, who, ten years ago, considered this type of analysis superfluous.
We have found these behaviors often the prelude to the development of a set of fraudulent business practices. In this specific case, we feel this may include manipulating or misrepresenting data used in ESG/social investing processes.
This communication (including all pages in this document) is for the sole use of the intended recipient and may contain confidential information. Unauthorized use, distribution, disclosure or any action taken or omitted to be taken in reliance on this document is prohibited, and may be unlawful. By inadvertent disclosure of this document Creative Investment Research, Inc. and William Michael Cunningham do not waive confidentiality privilege with respect hereto. This writing/publication is a creative work fully protected by all applicable copyright laws, as well as by misappropriation, trade secret, unfair competition and other applicable laws. The authors of this work have added value to the underlying factual materials herein through one or more of the following: unique and original selection, coordination, expression, arrangement, and classification of the information. No copyright is claimed in the text of statutes, regulations, and any excerpts from others’ reports or articles quoted within this work. Copyright©2007 by William Michael Cunningham and Creative Investment Research, Inc. William Michael Cunningham and Creative Investment Research, Inc. will vigorously defend all of their rights to this writing/publication. All rights reserved – including the right to reproduce in whole or in part in any form. Any reproduction in any form by anyone of the material contained herein without the permission of William Michael Cunningham and Creative Investment Research, Inc. is strictly prohibited. This document is registered with the US Library of Congress.
Wednesday, July 18, 2007
According to the Vladivostok Times, "The goal of the Forum is to promote the idea of social investments through creation of partnerships among local/regional authorities, businesses and non-commercial organizations (NGOs) for successful Territory"s socio-economic development. The New Eurasia Foundation Russian Far East Affiliate Office, in partnership with the Primorsky Territory Administration will hold SOCIAL INVESTMENTS FORUM IN THE RUSSIAN FAR EAST on July 27, 2007 in the framework of the first Pacific Economic Congress "Russia and Asia-Pacific - from cooperation to integration."
St. John’s Endowment Investments Outperform Those of a Majority of Higher Education InstitutionAccording to St. John's University, "A recently released NACUBO study indicates that St. John’s surpassed 90 percent of 700-plus colleges and universities in average annual rate of return on investments in the three-year period ending June 30, 2006. Most impressively, St. John’s outpaced many of the schools with endowments over $1 billion, with a return of 15.6 percent vs. their average return of 15.3 percent. The three-year average return for all schools reporting was 11.9 percent.
Former Investment Committee Chair Peter D’Angelo ‘78MBA, who remains a member of the Committee, points to the University’s Vincentian and Catholic values as drivers of many investment decisions. 'As a Catholic university, St. John’s has also adopted a social investing policy which is provided to the managers in our portfolio,' he says. 'It is our intention to promote the basic moral values of fairness, respect for human life, defense of human rights and social justice.'"
TIAA-CREF Adds 2% Target For Proactive Social Investments In CREF Social Choice Account
TIAA-CREF announced a "two percent target allocation to proactive social investments within the fixed income portion of its CREF Social Choice account (the Account). The two percent target will be based on the Account's total net assets."
Doing well by doing good
According to Philippine News.com, "Many investors have strong opinions that don’t involve their views on interest rates and stock prices. They want their holdings to reflect their values by avoiding companies that profit from activities they oppose, and supporting those that behave in ways they consider appropriate or responsible. At the same time, they still want to earn a reasonable return on their portfolios.
Socially responsible investing ('SRI') helps investors meet these goals by practicing an investment strategy designed to deliver an acceptable level of performance while excluding companies that don’t meet certain ethical standards."
SEC Enforcement Actions
On July 12, 2007, the Securities and Exchange Commission "filed a civil injunctive action against Michael F. Shanahan, Sr. (Shanahan), the former Chief Executive Officer and Chairman of the Board of Engineered Support Systems, Inc., and his son, Michael F. Shanahan, Jr. (Shanahan Jr.), a former member of Engineered Support's Compensation Committee of its Board of Directors, alleging that they participated in a fraudulent scheme in which they granted undisclosed, in-the-money stock options to themselves and to other Engineered Support officers, employees, and directors. According to the complaint, Engineered Support employees and directors received approximately $20 million in unauthorized and undisclosed compensation as a result of the backdating, $16 million of which was received by top executives and directors. Shanahan personally profited from the backdating scheme by more than $8.9 million."
The Creative Investment Research, Inc. Diversity Portfolio contains equity investments in some of the largest U.S. companies. These companies have been selected for inclusion because they have outstanding financial and diversity performance. Diversity performance is calculated by reviewing several key measures: Human capital, CEO commitment, and supplier diversity. From 4/7/06 to 7/17/07, the model portfolio returned 23.93% versus a 22.45% return for the market, as measured by the S&P 500 Index, a major stock market index (without considering dividends. Returns calculated before fees deducted. Past performance is no guarantee of future returns.) See DiversityFund.net for more information...
Angels Descend on Minority Business Enterprises
Investors gather to consider investments in top minority-owned ventures.
Portsmouth, VA (PRWEB) July 17, 2007 -- Virginia Housing and Community Development Corporation (VHCDC) continues its pioneering initiatives to facilitate the flow of capital to Minority Business Enterprises (MBEs) with the announcement of the 2007 MBE Capital Call Conference, Exhibition, and Venture Forum -- September 20 & 21 in Hampton, Virginia. The MBE Capital Call presents entrepreneurs with innovative and marketable business ideas the opportunity to secure capital, and other essential resources, by "Pitching" their business plans to active, accredited investors. This event invites Entrepreneurs, aspiring entrepreneurs, Investors, aspiring investors, and College/University Students to Hampton, Virginia for a rewarding two day conference aimed at facilitating investment in minority- and women-owned businesses.
VHCDC created the MBE Capital Call to expose and connect MBEs, particularly African-American, Hispanic, and Native American entrepreneurs, to capital (funding) to start and grow or expand their business. This year, twenty-one (21) entrepreneurs will be selected to pitch their business plans to active, accredited investors. A team of active investors and business development professionals will select the presenters from among registrations received thru August 10, 2007. Presenters will be judged on several criteria and may pitch plans for virtually any industry/business sector.
Registration is easy, and there's no additional cost to enter the competition. Business owners, aspiring entrepreneurs, investors, lenders, and students may register by visiting the MBE Capital Call website: www.mbecapitalcall.com now for complete details, registration, and terms and conditions.
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