How Do You Vet Your SR Fund Manager?

Pax Management Group has been fined $500,000 by the SEC for having failed to properly vet its investment for being socially responsible, as promised. As a result, it made investments in companies that fail to meet its own criteria. The one thing that is good in all this is that Pax has not attempted to make excuses. Unfortunately, they also "haven't admitted guilt". But CEO Joseph F. Keefe has claimed they are doing a top-to-bottom review of practices to correct this problem for the future, and have already made significant improvements.

Perhaps the more interesting dilemma here stems from the way that they violated their principles. Amongst the offensive securities purchased are: Anadarko Petroleum Corp., an oil and natural-gas exploration company; Darden Restaurants Inc., which operates a chain with its own micro-brewed beer; and Jacobs Engineering Group Inc., a defense contractor. Why are these problematic? Because amongst the industries that Pax promises to avoid are those that engage in military contracts and tobacco commerce. But the lines are very broad strokes indeed: Here is a piece from the Pax Sustainable-Investing Overview brochure:





As you can see -- (well, it's kind of small. You may need to have a younger friend read it to you) -- the criteria are pretty loosy-goosy. Besides, in the world of consolidation and massive multi-national conglomeration, how do you escape the ultimate deconstruction of your investments into being offensive in a minimum number of degrees of separation?

Choose whatever "blue chip" security you like, and in a game not unlike the famous Kevin Bacon parlor game, in fewer than 6 degree of separation you can connect it, intimately, to guns, tobacco, human rights offenses and the like. Go ahead, try it!

Take, for example, IBM: What do you know, IBM owns oil refineries and oil "exploration" companies! Now, I wonder, do you think all that oil exploration is here, in the so-called FREE world, safe from the control of foreign oil? Doubtful.

Okay, what about, say, General Electric? What d'ya know, GE provides engines to the military. And so forth.

These are weak cases, easily found and so not as bad as one might expect. But dig deeper and you'll find those connections. So is it even possible to stay "clean"? Doubtful. But it's nice to think that people are trying, even if only for the sake of window-dressing. Right?