BSW Wealth Partners has always helped its clients with socially responsible investing, but 10 years ago it made the strategy into a central focus—and has reaped the benefits of the decision ever since.
Assets under management have gone from $225 million to $736 million since the multifamily office decided to offer an impact investing alternative in all asset classes, according to David Wolf, the firm’s chief investment officer.
The Boulder, Colo.-based firm, founded in 1992, serves 170 clients, about a third of whom have adopted an impact investing strategy in their investment portfolios, according to the firm. Among new clients, a majority chooses that type of strategy.
The firm’s embrace of socially responsible investing has also helped it win the business of multiple generations of the families it serves.
“These children are pushing the envelope of impact investing,” says Drew Simon, managing principal of BSW. “They’ve grown up in an era with clear examples of companies that did not make financial or performance sacrifices to honor values.”
BSW’s typical client has $3 million to $5 million in investable assets under management, some with as much as $25 million. The firm serves three generations of many of the family’s it serves. One of the firm’s largest clients is a self-made real estate developer who arrived in the U.S. with little money. The firm manages the wealth of his entire family—grandparents, parents and children. Another family owns one of the largest private media companies in the U.S. Another client is a best-selling author.
The firm, founded by Debi Baydush, has grown over the past 20 years to include three more principals and twelve employees. While the majority of BSW’s clients are based in Colorado (64%) and California (12%), the rest are scattered throughout the U.S., with some as far away as Germany, New Zealand and Tasmania.
In addition to attracting new clients, the firm’s broad range of impact offerings is helping it retain clients’ children—investors now in their mid-20s to mid-30s who have been influenced by their parents’ foray into socially responsible investing and taking it to a new level.
“This cohort of investors is presenting a broader challenge to the investment industry,” Simon says. “They want to have a positive impact on the world. And they don’t want to sacrifice returns.”
The firm focuses on a diversified portfolio of impact investments that seek to generate positive social or environmental impact, while realizing a financial return.
One of BSW’s core philosophies is that asset allocation is the primary driver of long-term performance. The firm offers its clients active impact investments in several key areas:
• Stocks that are screened to target companies whose products and services are beneficial to the world and address significant environmental and social issues.
• Bonds that have a positive social impact.
• Direct real estate investments in sustainably managed, multifamily residential, office and low-income housing.
• Non-traditional investments in lower volatility strategies designed to complement the other asset classes.
• Private equity and venture capital investments, including direct investments in early- and growth-stage private companies.
“Our roots are in traditional investing. We use the same rigor, due diligence standards and return expectations for impact portfolios that we use for traditional portfolios,” says Wolf. “Applying the same metrics is what will truly enable sustainable investing to be sustainable.”
The firm’s showcase impact offering is one that Wolf developed in response to client demand for a relatively liquid and transparent fixed-income strategy that would provide safety, as well as reliable returns, during periods of economic volatility. Because he couldn’t find a product that fit that description, Wolf started building custom, laddered portfolios of high-quality, tax-exempt municipal bonds that could be tailored geographically to suit clients’ desires to invest in their own communities.
In May 2010, BSW launched the R3 Bond Strategy (the R3 stands for “rethink responsible returns”). The firm says it is the nation’s first municipal impact bond portfolio. Thirty-three percent of the portfolio is invested in green initiatives; 66% is invested in community and economic development projects. The fund initially raised $21 million and has since grown to $60 million. It appeared two months ago on Schwab’s Managed Account Platform, where independent advisors can access it for a management fee of 65 basis points.
BSW’s municipal bond impact strategy has been a hit with younger clients who’d rather invest in green buildings and mass transit than correctional facilities and roads that contribute to urban sprawl, according to Wolf.
“Clients want the transparency to follow their dollars all the way to the end use,” says Wolf. “We’re doing the hard legwork to identify bonds that provide the same economic returns, but also provide tangible impact benefits by funding the types of projects our clients want their wealth to support.”
Sectors where BSW has helped clients invest capital include community development and economic revitalization, social enterprise, green technology, renewable energy, sustainable buildings, farmland and timberland. One of the firm’s major direct real estate investments is the LG&E Center, which in 2010 was named the most energy efficient building in Louisville, Ky.
