Earlier this week we reviewed HIP Investor by R Paul Herman. The HIP approach (Human Impact +Profit) is a tried and packaged method for assessing companies for their ability to simultaneously make better profits BY making a better world. I had a chance to ask a few follow up questions of Paul.
Sanford: What was the Genesis of the HIP idea?
Herman: I was having frequent conversations with entrepreneurs who were giving to charity but feeling frustrated. They were also seeking a social impact with their business investment. They were genuinely curious about how to “do good” and have a profitable portfolio at the same time.
I offered to find them some deals for investing in which they could do both. In my search I found good investments particularly in the micro finance world that were very attractive. They were low risk with good returns. I offered them as part of their new responsible portfolio they were building.
But I was surprised when their financial advisors nixed the investments claiming, “If it is social, it could not make money”. As quantitative people they were ignoring the data and results that proved them wrong.
It made me want to prove it was possible in traditional terms they could understand and accept. Like profit earnings ration and Standards and Poor’s ratings. I believed we could build a portfolio that could outperform the market as a whole, while, and even by, doing the right thing. As of July 3oth, we have proved it. Check out our website. The HIP portfolio we put together of investments, outperformed the market by a 40% premium.
Why was this important to prove?
We cannot ignore or even delay solving really complex problems on a global scale. We have people who subsist on $1-3 dollars a day around the world. There is no financing for meaningful ventures to tackle this. Nor do not take into account the full cost of doing business; e.g. using air and water are not counted. Nor is the value that employees add to lives of stakeholders. We need to account for these things so they can happen.
But we also need to be able to add value to a portfolio in a consistent way. We are starting to see this happen in unexpected places. Examples even Goldman Saks has a fund that is looking at how to be socially and financially successful at the same time. We have now given them a way to rate and rank companies from both windows.
What is next for HIP Investing?
HIP 100 hit the bull’s eye in first year. We are now five years into this new reality of making a profit by making a better world. We are looking for a mutual fund partner who wants to build a family of HIP mutual funds. We believe this will make sense to individual investors, corporate investors in many situations and foundations who want the social side accounted for without an underperforming portfolio. They cannot afford in today’s markets to risk the assets for which they have fiduciary responsibility.
We are moving to work on all Asset Classes, creating tools to rate and rank any investment. We believe people should be able to build a profitable social portfolio. We are looking at bonds and real estate, any time of investment. In all these asset classes we will be able to demonstrate that the higher the HIP score the more financial advantage they will have.
We have investors who also have interest in applying HIP to emerging markets with high growth paths. Eventually we will have the ability to do that. Also to predict HIP scores for bonds. HIPness of all those types of assets needs to exist so their portfolio is HIP overall.
Families are asking to have solid portfolios. We are looking at pulling out excerpts from the book for special audiences of investors like these. Putting it into different formats to make it more accessible. Maybe ebooks for special audiences along side the physical. We want to get it down to step-by-step processes.
In Mutual Fund HIP Scores people will understand what their percentage effect is in the fund and what that investment implies for them. Mutual Funds can be understood more completely where it is mostly hidden now. You can be HIP in all of your investing.
Do Private Companies have advantages?
Private ventures can be rated more higher than public because of ownership control, governance management and agility, where larger public have different pressures. But public companies are moving in this direction because they see the logic between the financial and social side. Real Estate firms are embracing the HIP approach. It is like a LEED certification for investing.