DEALBOOK
New Goldman Sachs
Fund Will Track Paul Tudor Jones’s Feel-Good Companies
|
Paul Tudor Jones II, who became famous for
shorting the stock market before Black Monday in 1987, was
prompted to think seriously about corporate responsibility in
2012. On Wednesday, Goldman Sachs will begin offering a fund
based on his research.
Michael Nagle/Bloomberg |
By
Andrew Ross Sorkin
June 11, 2018
The spiritual
guru Deepak Chopra had just finished teaching a class about ethics in
business at Columbia Business School when he called the billionaire
investor Paul Tudor Jones II in the fall of 2012.
“‘Listen, one of
my students has got a really good idea,’” Mr. Jones said Mr. Chopra
had told him. The student had posed two questions: “Why can’t
companies be an instrument for goodness? Why can’t companies focus
their capital — human and financial — on being a change agent for
societal betterment, a change agent for justness?”
This was long
before the E.S.G. movement — the focus on environmental, social and
governance issues — became fashionable, and Mr. Jones was struck by
the question. So he set out to answer it. Since then, he has built an
entire foundation,
Just Capital, around the idea
and developed a series of metrics to measure corporate America on more
than mere profits, using annual polls to determine what corporate
practices, including how workers are treated and job creation, matter
most to Americans.
Up until now,
Mr. Jones’s measure of corporate America was simply a list of
companies, a ranking that he hoped would encourage chief executives to
think more about doing right by society.
But now it is
about to become a financial product.
On Wednesday,
Goldman Sachs, using Mr. Jones’s metrics, will introduce a new
exchange-traded fund as part of series of social impact efforts by the
firm.
The fund is a
feel-good selection of Russell 1000 companies, tracking the top 50
percent of those in each industry based on Just Capital’s publicly
available model, which scores businesses using a complex formula
related to workers, customers, products, environment, jobs,
communities and management. Only 6 percent of the calculation of the
index relates to how well a company provides investor return.
The top five
companies in the
2017 rankings all came from
the tech sector: Intel was No. 1, followed by Texas Instruments,
Nvidia, Microsoft and IBM.
Whether the
formula is a winning one for investors is a bit of an open question.
The fund would have outperformed the Russell 1000 by 3.47 percent over
the past two years. That’s the good news. The bad news is there is no
way to test the formula any further back, and each year, the index
changes based on shifts in the polling. If Americans become more
concerned about job creation and less concerned about worker pay,
different companies could be included.
“We rank the
companies as best we can,” said Mr. Jones, who became famous for
shorting the stock market before Black Monday in 1987 and went on to
found the
Robin Hood Foundation, an
antipoverty organization. “And it’s our best effort — it’s not a
science. There are many different ways you can debate the decisions
that we have had to make, and I’m sure it will evolve and we’re going
to get better at it.”
So it’s a bit of
a guess how well Just Capital’s index will perform over the long term,
a point Mr. Jones acknowledges up front.
“I think it
outperforms” similar indexes, he said. But he quickly warned that
“when we get in a bear market, this thing is going down 95 percent of
what the other ones are, too.” He added: “Let’s just all be honest
about that. We are talking about relative outperformance.”
According to
Just Capital, the companies in the fund outperformed the remainder of
the Russell 1000 in a number of important, socially conscious ways:
They paid 71 percent less in fines for consumer sales-terms violations
and 94 percent less in Equal Employment Opportunity Commission fines,
produced 45 percent lower greenhouse gas emissions per dollar of
revenue, and created American jobs at a 20 percent greater rate.
Investors will pay a 0.2 percent fee, which is about half the price of
most other E.S.G.-oriented funds.
But Goldman
Sachs and Mr. Jones aren’t selling the fund as a quick-buck way for
day traders to beat the stock market.
Instead, it is
being sold as a curated solution at a time when pension funds and
other institutional investors are looking to shift their investments
into socially responsible funds.
“We are seeing
clients think about this product in different ways,” said John
Goldstein, a managing director within Goldman Sachs Asset Management.
“Some look to it as value-aligned market exposure, while others see a
set of drivers of performance in a changing world.”
Whether social
impact investing will turn out to be the most profitable way to invest
has become one of the biggest questions within the investment world.
Laurence Fink, a
co-founder of BlackRock, the largest investment manager in the world,
with over $6 trillion under management,
told chief executives in a letter
this year, “To prosper over time, every company must not only deliver
financial performance, but also show how it makes a positive
contribution to society.”
Mr. Jones came
to the same conclusion several years ago. He said he had been taken
aback when he realized how a company’s stock performance correlated
with how responsibly it behaved.
“I couldn’t
believe it,” he said. The results were sufficiently profound to make
him rethink his own business.
“I’ve got to
think about, even in my own business, how I am treating my employees,
how we’re running and operating this business,” Mr. Jones said. (Among
other changes, he said, he and his management team recently tripled
the amount of profits his investment fund pays out to charity.)
One major
distinction between the new fund and the bevy of other socially
responsible funds that have emerged is that it does not exclude any
company based on a moral argument, except for tobacco. So the fund can
include coal companies, for example, but only those that lead the
industry based on his metrics.
No matter their
industry, he wants executives and board members to be thinking:
“What’s my environmental footprint relative to every one else in my
field? Where are my best business practices relative to my competitor?
Am I doing as good a job as I possibly can, or is there someone doing
better?”
While it may be
in vogue to talk about socially responsible investments, until they
prove they can perform better over a significant period of time, it
will be hard for even the most virtuous investors to plow significant
sums into them.
For now, Mr.
Jones is happy to get the conversation started.
“The corporate
mission as practiced today was designed in 1970 by Milton Friedman,
when he famously said the social responsibility of the corporation is
to improve its profits,” Mr. Jones said. “The biggest objective I
think for those of us at Just is to begin the debate.”
Correction: June
11, 2018
An earlier
version of this column misstated an aspect of a new exchange-traded
fund that is based on Just Capital’s metrics. The fund will not
include tobacco companies, even if they lead their industry according
to the metrics.
Correction: June
12, 2018
An earlier
version of this column misquoted a comment by Paul Tudor Jones II. He
said “The social responsibility of the corporation is to improve its
profits,” not its products. The column also referred imprecisely to
Goldman Sachs’s creation of the new fund. The fund is part of a
broader series of social impact efforts by the firm, not its first
foray into social impact investing.
A version of this article appears in print on June 12, 2018, on Page
B2 of the New York edition with the headline: A Feel-Good Index Now
Has a Fund.
© 2018 The
New York Times Company