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Thursday, September 23, 2021

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Student Managed Investment Fund adds sustainability focus to portfolio

<p>Queally Hall at the Robins School of Business.</p>

Queally Hall at the Robins School of Business.

The University of Richmond’s Student Managed Investment Fund, SMIF, added a focus on sustainability in its investment portfolios. 

The 14-person student-managed fund invests over $1 million with little oversight from faculty apart from basic stock trading guidelines, John Earl, professor of finance, said. 

The guidance Earl gives is a set of risk averse rules including regulations such as no trading stocks on margin and no shorting stocks, he said. Other than those, SMIF may trade freely so long as they can defend their decisions, Earl said. 

A set of risk averse trading rules, like no trading stocks on margin and no shorting stocks, is the only guidance Earl gives SMIF students. Otherwise, they may trade freely so long as they can defend their decisions, he said. 

SMIF is split into two funds, the growth fund and the value fund.

“The growth fund is focused on stocks with momentum,” said Isabel Nonemaker, a UR senior and SMIF value fund member. “They are investing based on past growth and future expectations. [The value fund] is searching for stocks that are trading at share prices below their intrinsic value. We’re lucky because we get to choose which style of investing we do.”

SMIF meets weekly for the entirety of senior year and gives a midyear and end of year review to the Board of Trustees, said Michael Ukrainskyj, a UR senior and president and general manager of the fund. 

The Board, led by Rector Paul Queally, asked students about taking on a more sustainability-minded approach at last year’s end-of-year review, Earl said. 

In the finance world, there is an acronym to describe a criteria for a company’s commitment -- or lack thereof -- to being sustainable known as ESG: Environmental, Social and Corporate Governance, Nonemaker said. 

A company does not necessarily need to be involved in the environment to display a commitment to ESG, Nonemaker said. A company with a high ESG score shows a high level of commitment to the environment, their community and to ensuring Board members and employees are operating independently. 

The score is determined on a scale from one to three by the Sustainability Accounting Standards Board, Ukrainskyj said. 

When the Board brought up an ESG approach, the student managers tried to open up a completely separate environmental fund. However, there was pushback, Ukrainskyj said. 

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Instead, the Board and the fund’s leadership decided that SMIF would incorporate ESG into the criteria of its investment decisions, and they would track those numbers and see if ESG conscious companies turn a higher profit, Ukrainskyj added. 

This ESG mindedness was spearheaded by Rachel Perry, a UR senior and ESG manager of SMIF.

“We could make the most impact through ESG integration into our value and growth fund and include ESG factors in our investment decision making process, whether that be through new stock pitches or discussion of holdings that we inherited going into SMIF,” Perry said. 

The environment, the companies SMIF invests in, people who work for those companies and all of us are connected; if we don’t start fixing how we look at the world and invest in companies, we are going to be in crisis, Perry said. 

“I see the issue that the world is facing, and I want to be a steward of opportunity and a steward of solution, and I understand that I’m only at the beginning of my journey. … But I saw an opportunity to make an impact in the business school,” she said. 

Next year, there will be two ESG managers to better integrate the ESG criteria into stock pitches within SMIF, Perry said. 

“ESG is a constantly evolving space and needs a lot of cooperation and communication,” she said. “I wanted students to keep building off what I created [to] bounce ideas off each other.”

Since Perry became ESG manager, every stock pitch and current holding has been assigned an ESG value. The companies with a high ESG score would most likely generate higher returns, Nonemaker said. 

“The general trend within the finance world is to magnify companies with ESG effort,” Perry said. “With the political climate these days, ESG isn’t just environmental. Goal setting is very important. ‘Social’ refers to fair treatment and how the company may give back to its community.”

Blackrock is one of America’s largest investment management corporations, and its CEO recently wrote a letter to other finance industry CEOs urging them to consider sustainability in their management, Suraya Souidi, a Rethink Waste intern at UR’s Office of Sustainability, said.

“Sustainability contributes a lot to the longevity of a company in general, and it’s a really important aspect to how companies are growing,” Souidi said. “ESG is a very strong indicator to later success in a company.

“I do think that it’s a really good idea. I don’t think the school has enough sustainability related initiatives.”

Sustainability should not be reduced to a decision-making criteria in SMIF, Souidi said. 

Rather, she said sustainability should be something that was always considered in administrative action; it should stop being weighed against the economic bottom line.

Contact contributor Staton Whaley at staton.whaley@richmond.edu.

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