Veteran hedge fund manager Clint Carlson is no softie. But he does have an affinity for socially responsible investing — as long as it makes money.
Mr. Carlson is founder, president and chief investment officer of Carlson Capital LP, Dallas. He was skeptical about the return prospects for an SRI version of the firm's core relative value equity strategy when a longtime institutional client asked the firm's investment team to give it a try. Mr. Carlson said he couldn't identify the investor.
It turned out the strategy — which is industry neutral, non-directional and low beta, and invests on the long and short side of 350 pairs of stock — was fairly easily adapted to an SRI approach.
“We found that if we screened for non-compliant pairs of stocks, we only had to cut 10% to 15% of the total universe. That doesn't materially change the performance of the strategy, given the broad level of diversification inherent in the pairs strategy,” Mr. Carlson said.
The SRI version of the strategy was launched in February 2013 and now runs about $42 million, including institutional clients. There is also a fairly full pipeline of institutional investors, primarily health-care firms, faith-based charities and pension funds expressing interest, he said. One of the challenges, Mr. Carlson said, is “the wide diversity” of the SRI screens organizations want to apply to the relative value strategy.
“But we usually can find some general agreement between different organizations. For example, most investors are content to have environmentally responsible companies in the portfolio, even if they can't tolerate tobacco or contraceptives,” Mr. Carlson said.