Cornell University's 2010 SustaInvest Competition Winners Announced
The Center for Sustainable Global Enterprise at Cornell University’s Johnson Graduate School of Management recently announced the winners of the second annual SustaInvest Competition. SustaInvest invites undergraduate and graduate students to submit a $10 million “mock” portfolio in the Cornell Endowment, challenging them to maximize both financial profitability and sustainability. The quality of this year’s entrees indicates that good progress is being made in integrating the study of sustainable investing and finance into the business school curriculum.
Left to right above: Nicholas Kaw, Christopher Rannefors, Yongjin Lee, and Siravut Thammavaranucupt
This year’s winners were teams from The University of Virginia (first prize), New York University (second prize) and Cornell University (third prize). First prize winners were awarded $1000, second prize winners $500 and third prize winners $250. The competition was managed this year by Carol Hu, Paul Schutzman, and Paul Koch. All three are students enrolled in the Capital Markets and Asset Management immersion program at the Johnson School of Management and all plan to pursue careers in sustainable investing.
The contest was judged by Robert C. Andolina a Visiting Senior Lecturer of Finance, at the Johnson School who recently retired from a 19-year career at Lehman Brothers equities business; Scott Budde, who oversees the community investing programs and socially screened funds at TIAA-CREF; Gisele Everett, Head of Private Equity Investments, Deutsche Bank Climate Change Advisors; Dr. Mark Milstein, Senior Lecturer and Director of the Center for Sustainable Global Enterprise at the Johnson School; and Cody Danks Burke, Associate Director, Cornell Investment Office.
Dr. Milstein reports that there was a greater emphasis on impact investing than on ESG investing this year and also a generally more sophisticated approach to linking social and environmental impacts with financial returns. “Last year some of the teams with an impact focus came in and pitched investment ideas around something amorphous like ‘these companies are doing good’ that didn’t necessarily translate into an understanding of how that would yield long-term financial value,” notes Dr. Milstein. “Teams this year were more focused, for example, looking at companies that were addressing the problems the Millennium Development Goals and how that connected with a growth imperative. The teams that did better over some of last year’s were able to articulate that impact investment value more effectively.”
There was also a marked improvement, Dr. Milstein maintains, in the sustainability “narrative.” “Last year there was a bit too much of ‘we think you should invest in this organization because they are known as a sustainability leader,’” says Dr. Milstein. “This year there were more informed rationales as to why a team would look at a certain class of investments, group of companies, industries and or technologies.”
Below, student team manager Carol Hu notes further evidence of the evolution of student portfolios from year one to year two:
Carol Hu: While the number of entries was fewer, the quality was much higher. The portfolios showed a better understanding of portfolio construction, as well as the interests of an institutional investor like the Cornell Endowment. Last year’s entries only included public equities, whereas the portfolio this year included a broader interpretation of asset classes and methods of positive social impact, including microfinance, venture capital and private equity. Not only did the portfolios include coherent sustainability themes, they also showed evidence of a greater level of rigor in their financial analysis. Finally, we had more participation from business schools and interest that spanned beyond the “Net Impact” crowd, and we hope to build on that for next year's SustaInvest competition.
Can you describe the strategies of the winning portfolios?
Carol Hu: With their investment strategy first place winning team of the University of Virginia looked to address poverty with a sustainable multi-faceted approach. Specifically, they looked at five industries that would meet the theme of sustainable poverty alleviation: waste to energy, telecommunications, community development, water, and microfinance. Not only did the securities work to serve the bottom income brackets, several of them were included to complement the strategy by providing services like waste management and water purification. The security selection process sought a positive growth outlook, innovative business models and a competitive global strategy. The firms also had to embrace a triple bottom line reporting philosophy. UVA's team's portfolio was 31% debt and 69% equity, and consisted of public equities, microfinance, real assets, and fixed income.
The approach of the second place New York University team began with Monte Carlo simulations of ESG mutual fund baskets to determine an appropriate allocation of various traditional debt and equity mutual funds. They also recommended investing in venture capital funds or private placements in non-public companies. The rationale behind this gave the portfolio access to stage companies focused on ESG issues, the "ability to participate in shaping a product or service available to communities in a sustainable manner," and an ability to "leverage grassroots expertise with respect to socio-economic issues, and incentivize capital-intensive innovation targeted at solving global environmental issues." One final aspect of the strategy called for creating a "Cornell Rural Opportunity and Assistance Program" that selected mid-stage ventures aimed to revolutionize ESG innovation, specifically as it relates to services or products that incorporate agriculture and clean-tech innovation, both relevant to conditions and developments in upstate New York.
The Cornell University team, the third place winner, focused not only on traditional risk/return concerns, but looked at ways their investments could address three trends: 1) an increasing need for energy, 2) an increasing need for freshwater, and 3) an increased willingness for consumers to pay a premium for companies that are responsible. The Cornell team's portfolio was entirely made up of publicly traded companies. Rather than diversifying, the team focused on extensive ESG coupled with traditional fundamental analysis. In measuring ESG, the team took a best-in-class approach and used data from the Carbon Disclosure Project, as well as other sources.