Exclusion toughest decision on investments, trustees told


By Reggie Ponder
Staff Writer

Monday, June 25, 2018

Elizabeth City State University trustees have reached a challenging stage in their exploration of “socially responsible investing”:  deciding what to exclude, if anything, from the university’s portfolio of investments.

Brandon Whitley and Phil Newhart of First Citizens spoke to the trustees’ Endowment Committee earlier this month, explaining how their firm’s investment management services can help the university with socially responsible investing.

Both Whitley and Newhart noted socially responsible investing is now generally referred to as “ESG” investing because it considers environmental, social and governance factors. The challenge, Whitley said, is selecting the types of investments the university wants to exclude. Typically the responsibility for defining the parameters of what investments to exclude falls on the client, he said.

Companies involved in the extraction of fossil fuels is an example of the type of firm a client might want to exclude as an investment based on environmental factors. 

International real estate is another type of investment some nonprofits have chosen to exclude, according to Newhart.

There is a trade-off in the long term, Newhart said. While in some years an ESG portfolio might out-perform other investments, there’s generally a somewhat lower return over the long term compared with a portfolio managed solely to maximize returns.

“There is a price for excluding certain assets,” Newhart said.

Josh Lassiter, ECSU vice chancellor for business and finance, asked if ESG investing was a “binary choice,” meaning you’re either in or out.

Newhart replied there can be some flexibility. Using the example of energy industry stocks, Newhart said “you may own something related to energy but (the firm is) a good actor in that space.”

ECSU Board of Trustees Chairman Kim Brown said that as a public institution ECSU needs to be concerned about the way its dollars are invested.

Brown said the social component of ESG is especially important. For instance, it’s important to invest in companies that have diversity in their leadership, Brown said.

Lassiter told Endowment Committee members that the university’s endowment had performed at an all-time high over the past several quarters. However, it’s been a bit more “up and down” during the first quarter of this year, he said.

Newhart said the “smooth rally” of 2017 was unusual; the increased volatility in the market in recent months is more typical, he said.

“Stocks are volatile and this is a reminder of that,” Newhart said.

Good signs currently include strong corporate earnings, confident consumers and pro-growth fiscal policies, Newhart said.

In response to a question from a committee member about the trade policies of the Trump administration, Newhart said he’s not overly concerned now but there are significant risks if a “full-scale trade war” erupts.

“My belief is that the market does not like unpredictability in anything,” Newhart said. “In the tariffs and the quotas the devil will be in the details.”