A key part underlying the Rockefeller Brothers Fund’s process to divest its fossil-fuel holdings and shift its investments closer to its philanthropic aims was moving to an outsourced CIO structure.
The $860 million New York-based foundation hired Perella Weinberg Partners LP. “They came on board in March,” said Stephen Heintz, fund president.
The fund, which announced its plans for divestment Sept. 22, has about $57 million in fossil-fuel holdings, including stocks in Exxon Mobil Corp., Royal Dutch Shell PLC, BP PLC and Chevron Corp.
The fund’s trustees and investment committee sought “an outsourced CIO that would help us with our overall mission-related investing goals.”
“The divestment part is only one aspect of this” investment objective, Mr. Heintz said. “We also very actively are seeking to invest greater and greater percentages of our assets into investments that are supportive of the mission of the foundation,” such as investing in clean energy and renewable energy technology.
The fund has set a goal to invest 10% of its assets in so-called impact investments, supporting the foundation’s three broad program areas of sustainable development, democratic practice and peace building.
The fund hasn’t set a time frame for implementing that allocation, which would come in public equities, private equities and other asset classes.
“We are aligning our investment practices with our philanthropic goals,” Mr. Heintz said. “And we needed to have an outsourced CIO that was both capable of doing that and willing to do that and interested in doing that.”
The Perella Weinberg hiring was the result of “a competitive (search) process,” Mr. Heintz said. The fund issued an RFP last fall, getting 13 proposals.
The fund moved to the outsourced CIO structure because with the fund “inching up toward $1 billion … it’s more than we felt we could really manage internally in a prudent and thoughtful manner,” Mr. Heintz said.
“We don’t have a (chief investment officer) on staff, and we weren’t going to be able to hire a CIO that had the kind of investment background and track record and experience that we thought we could afford because people like that demand very generous compensation,” Mr. Heintz said. With “a foundation of our size and values (philanthropic mission) structure, we felt that (paying such a high compensation) would not be appropriate.”
“So hiring an outsourced firm allows us to get a diversified team of investment professionals, who are working on our investments but (also working) on investments for other clients,” Mr. Heintz said.
The fund’s investment committee and trustees were already in the “thought stage” before hiring Perella Weinberg, which calls its outsourced CIO platform Agility. The “proactive mission-related investing and the divestment challenge were very much (already) on our agenda,” before the search process, Mr. Heintz said.
Fund officials expect to take two to three years “to fully divest or come as close to fully divesting as we possibly can,” Mr. Heintz said. The fund plans “to maintain some residual position in some of these major energy companies in order that we can also continue to be active with our proxies” in trying to influence corporate policy, Mr. Heintz said. ”Shareholder activity is … very important.”
Perella Weinberg has full discretion to hire and fire managers, Mr. Heitz said. The fund’s trustees working with the investment committee and Perella Weinberg “determine the asset allocation strategy.” The fund’s trustees retain ultimate fiduciary responsibility.
As of July 31, the fund’s allocation, which was unchanged, was 41% global equities, 19% private equity, 14% absolute-return hedge funds, 13% real assets, 12% global fixed income and 1% cash. The asset classes are within one or two percentage points of their target allocations.
In divesting and mission-related investing, fund officials are “committed … to manage our assets” without undercutting the fund’s risk and return objectives, Mr. Heintz said.
Fund officials have challenged themselves to not only reach the fund’s investment goals “in the kind of volatile markets we’ve seen in the last decade” but added the objective “to invest in things that are aligned with our mission and divest from things that contradict our mission,” Mr. Heintz said. Fund officials have no plans to divest in any areas other than fossil-fuel holdings, Mr. Heintz said.
In redeploying divestment proceeds, fund officials “hope that we have enough product coming from the market (for investments) that we think can help us achieve both our mission goal and our overall return goals,” Mr. Heintz said.
But the market “is not there yet” in terms of a sufficient amount of such mission-related investments, Mr. Heintz said.
“We may invest in some things that don’t contradict our program goals but are not directly related to them either but have the promise of good return,” Mr. Heitz said.
Perella Weinberg Partners Agility has $5.6 billion in outsourced CIO assets, said Christopher L. Bittman, partner and CIO. Its 20 other clients consist of college and university endowments, foundations, sovereign wealth funds and family offices. It has no pension funds and hasn’t reached out to that market segment because the team’s experience is with the non-profit sector, which is “usually the best fit for us,” Mr. Bittman said.
To assist in investing based on environmental, social and governance factors, Perella Weinberg hired Imprint Capital Advisors LLC, San Francisco, as an investment consultant.
In terms of the Rockefeller fund’s decision to divest, Mr. Heitz commented on the irony, considering the origins of its assets come from a family whose wealth originated in its pioneering development of the petroleum industry.
“We would not be here had it not been for the enormous success of Standard Oil and John D. Rockefeller as the extraordinary global businessman,” Mr. Heintz said. “Yet generations later the family (members) who are on the (fund’s) board — and those family members don’t speak for the entire Rockefeller family, they speak for the Rockefeller Brothers Fund — have come to the conclusion that the future is in clean-energy technologies, and it’s time to move in that direction.”
“It’s because they see both a moral imperative, given the threat of climate change and its impact on the planet … and because there is a really strong economic case to be made that investments in fossil fuels are going to be riskier and riskier as the global community moves to avoid climate catastrophe.”
“On the other hand, there is going to be this enormous growth … in the market for renewable energy and clean-energy technology,” Mr. Heintz said. So with the Rockefeller fund “being in the early stage … it is likely to be a very good investment.”
