Exploring ESG Investing: An ESG Path Forward

Rachel Alembakis, managing editor of FS Sustainability, moderated a panel on different investor approaches to environmental, social and governance and sustainable investments by large and smaller investors as part of CIO’s recent Exploring ESG Investing virtual conference. Investors Zach Stein and Andrew Siwo provided varying perspectives and offered insights into how they are implementing their ESG and sustainable strategies.

Carbon Collective works with IRAs, brokerage accounts and trusts to help clients become more invested in green, sustainable stock and bond portfolios that are specifically built for solving climate change. It offers services to individual investors through a robo-adviser offering similar to Betterment or Wealthfront, with an average account size of roughly $50,000. In addition, Stein manages a portfolio of 192 companies.

Stein, co-founder and CIO of Carbon Collective said, “we work with one organization at a time to make sure that they get 401(k) plan options that align with their missions.”

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This approach differs from Siwo, the director of sustainable investments and climate solutions at the New York State Common Retirement Fund. The $258 billion fund, which is the state’s public pension system, is 103% funded, per the comprehensive annual financial report for the last fiscal year, and has a $20 billion commitment to sustainable investments and climate solutions that he oversees as portfolio manager. In this role, he identifies investments across asset classes that are accretive to its portfolio and meet sustainability goals.

Siwo said, “we view ESG as a tool in identifying risks and opportunities; we do not view it as an asset class.”

Though it may be a tool, Siwo oversees what he calls “an asset-driven approach” in the portfolio, with allocation to real estate, opportunistic credit, private and public equity, private and public debt and real assets such as infrastructure projects.

“The approach is successful because the underlying guidelines and expectations are the same. When I began two years ago, we were at $8 billion, and now were just under $19 billion. In the past two years, we’ve put quite a lot of capital to work,” Siwo says.

According to Siwo, “the CFA institute has four ESG approaches, which include thematic, active/engagement, best in class and ESG integration. Those are four approaches that various managers use. In addition, you have SRI, ESG and impact investing, and those terms sometimes can be conflated.”

Siwo said, “our approach is a sustainable investment approach, so we have a flavor of all three of those investment styles.”

Stein engages with corporate management in pursuit of sustainable outcomes from their operations.

These efforts inform his investment strategy and how he selects the portfolio that he recommends plan sponsors put on their investment menus. Stein said he focuses on companies in which he believes shareholder pressure can maximize value.

“These are the companies we hold, because that’s where we can apply shareholder pressure,” Stein said. “Shareholder pressure is a very important tool in this toolbox, but there is an opportunity cost that exists [so holding these companies maximizes value]. And thirdly, the companies that we don’t invest in are companies whose core business could not exist in a post-carbon world. We don’t hold these companies, because we cannot adequately pressure them into making changes [towards climate ends].”

So Are ESG Investments Lousy, or Not?

401(k) Plans Need a Plan When Incorporating ESG Investing

Tags: Andrew Siwo, Carbon Collective, FS Sustainability, New York State Common Retirement Fund (NYCRF), NY State Common, Rachel Alembakis, Zach Stein

Infinity Q Capital Management has agreed to settle Securities and Exchange Commission charges that the firm’s Diversified Alpha Mutual Fund mispriced its net asset value over four years “as part of a massive overvaluation scheme.”

According to the SEC’s complaint, from at least February 2017 through February 2021, the mutual fund’s reported NAVs were materially and falsely inflated due to a mismarking scheme led by Infinity Q Capital Management’s Chief Investment Officer, James Velissaris.

“Velissaris mismarked the mutual fund’s NAVs in order to inflate the reported value of the mutual fund to investors, to attract and retain capital and to increase his own compensation,” says the complaint.

Velissaris was charged by the SEC in February. Based on information learned by the SEC and shared with Infinity Q at the time, the firm informed the fund that Velissaris had been adjusting certain parameters within the third-party pricing model that affected the valuation of the swaps, and that it was unable to conclude that the adjustments were reasonable. It decided the best course of action for the fund’s shareholders was to liquidate the fund, determine the extent and impact of the historical valuation errors and return the maximum amount of proceeds to shareholders.

Infinity Q and the mutual fund’s board filed an application in February to suspend redemptions in the mutual fund, which was approved by the SEC. The mutual fund was liquidated, and approximately $670 million was distributed to current shareholders, with approximately $570 million remaining to be distributed to harmed investors, the regulator said.

The complaint cites an unsealed indictment that alleged Velissaris pulled off the overvaluation scheme by secretly altering inputs and manipulating the code of a third-party pricing service used to value the funds’ assets. Velissaris allegedly collected more than $26 million in profit distributions through his fraudulent conduct and without disclosing his activities to investors, according to the SEC.

The SEC said the mutual fund has agreed to settle the charges and consent to the appointment of a special master to oversee expenses paid from the mutual fund and administer a process to return the remaining funds to harmed investors. The settlement and the appointment of the special master are subject to court approval.

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