James Katz traces his financial advisory niche all the way back to middle school when he started reading Isaac Asimov’s Foundation series that explored varying levels of the hard sciences and the laws of mass action to solve problems.
“I was really captured by the idea of using science to save the world,” said Katz, 33, the founder and chief executive of Humankind Investments.
If Katz, as a knowledge-thirsty middle schooler, didn’t imagine one day running an advisory firm dedicated to socially responsible investing, he did stay on the academic path to the point where he earned a doctorate from Stanford University.
“I wanted to have big, practical, positive impact on the world,” he said. “But in academia the fights are so fierce because the stakes are so low.”
Katz eventually found himself working as a quantitative data equity analyst at The Vanguard Group, where he has fond memories of staying true to his values.
“I was enjoying my time there,” he said. “The whole focus on lowering fees for clients really resonated with me.”
But the “eureka moment,” that led to Katz launching his own firm two years ago, came during a company meeting when he asked about Vanguard’s proxy voting policies.
He recalls the response along the lines of, “We have a fiduciary responsibility to maximize the long-term value for shareholders.”
Katz was already working on his Certified Financial Analyst designation while still at Vanguard, and he believed there was a market for a dedicated focus on environmental, social, and governance investing.
“Two things became clear to me: I thought the socially responsible investing space was going to grow, and people were still struggling to understand what socially responsible investing meant,” he said.
If you go back to Katz’s middle school introduction that interlaced his values with lots of math and science, it could be argued that Humankind Investments is among the most deliberate niche advisory practices in existence. But, for practical purposes, the two-year-old New York-based registered investment adviser is just getting started.
The firm’s $190 million under management is split almost evenly between separately managed accounts and the Humankind US Stock ETF (HKND), launched in February.
While Katz wouldn’t be in the wealth management space if he didn’t believe in generating positive returns, it is clear he also places a high value on the broader impact his decisions will have. And this is something his clients should be aware of going into a relationship with Humankind Investments.
“We talk about value for humanity and not just value created for investors,” he said. “There is the economic value that companies create for their customers, investors, and the community. We end up with a dollar value a company is creating for humanity and that’s how we weight companies in our portfolios.”
Katz describes his “performance thesis” as “really long term,” which should give clients and prospects a clear idea of where he places priorities.
“If society is really moving in a more socially responsible direction, more people will want to use those companies that are doing the right thing, and the government could also regulate non-socially responsible companies,” he said. “Even if your investment returns are good, if you only pay attention to the number at top of your investment portfolio, you’re missing out on other numbers important in your life.”
Katz uses the analogy of making a $1,000 profit from an investment in a tobacco company, but eventually facing $10,000 worth of medical bills for a family member that develops lung cancer from smoking.
To read more articles in this series, click here
“If everyone got together and invested in a way that’s socially responsible, it could benefit their portfolio, but also other parts of their lives,” he said. “This kind of impact exists across all these areas of social responsibility.”
As one might imagine, Humankind Investments is not rolling out the welcome mat for prospects who are not fully on board with socially responsible investing.
Katz said he might try to convince a potential client to come around to his way of thinking. But if that effort failed, he would not be able to build a portfolio for such a client.
“We only try to buy securities that have a net positive humankind value,” he said. “That’s our line in the sand.”
The post For this adviser, socially responsible investing comes first appeared first on InvestmentNews.