A Brief History of “Impact” at Vodia Capital
Vodia Capital is a firm that seeks to create sustainable long-term value for its clients. Since its inception in 2004, Vodia has pursued an investment strategy that captures fundamental value and manages risk and volatility in order to achieve long-term growth. A “values-based approach” has been intrinsic to Vodia’s investment strategy, and has evolved over time as the investment practice and social impact investing industry has developed.
Vodia was built upon the tenants of transparency, integrity, and community — holding a strong standard and sense of responsibility towards investment and wealth management. From its formation, Vodia aligned with many principles of the Socially Responsible Investment (SRI) movement, which is based primarily on the idea of creating a thriving and sustainable economy. SRI is an important long-term investment strategy for those who wish to express moral and ethical principles through portfolio holdings. When evaluating companies for potential investment, SRI considers the impact of the company’s practices from several angles: social, environmental and economic. Vodia incorporated many practices of SRI investing, applying tools and techniques such as Economic, Social and Governance (ESG) screens to ensure the portfolio allocation adhered to socially responsible criteria.
In 2009, Vodia created the proprietary Vodia™ Sustainability Index (VSI). The VSI is a tool for identifying high quality long-term value propositions that fit Vodia’s ESG criteria. The index was based upon a rating scale ranging from -1 to +3, which evaluated investment opportunities based upon their lasting impact in the area of sustainability. Evaluation factors range from social indicators (health, gender equality, safety) to economic metrics (ethical business practices, developing industries and economies) and impacts on the natural environment (carbon emission, alternative energy, and water.) Through VSI, Vodia became equipped with a tool designed to ensure that holdings were in line with Vodia’s commitment to community and sustainability.
The use and application of VSI have evolved over time, but the underlying principles for which it is based is still used to evaluate portfolio holdings. In its current strategy, Vodia Capital looks to create efficient and transparent portfolios built on academic research. Vodia uses tactical asset allocation, fundamental value analysis and risk management to effectively manage volatility and achieve long-term growth. The added layer of socially responsible investing ensures we adhere to our commitment to community and sustainability.
The implementation of social impact strategies is not limited to our investments, but includes our daily operations as an organization. From extensive employee-benefits programs to healthy eating for our staff, we learn about global and social challenges from experience and experimentation. In fact, back in 2011 Vodia was an early adopter of all-electric vehicle technology when we entered one of the first field tests in the U.S. Working closely with the manufacturer, our staff drove 100,000 miles in real-world use instead of using their own petroleum-based vehicles. To this day we still maintain an all-electric company vehicle for our staff and estimate they have saved over 1,600 barrels of oil consumption.
Impact Applied Across Asset Classes
Market Portfolio Theory assumes that an efficient portfolio can be built, one which maximizes return given risk associated across asset-classes. This theory has been an integral part of Vodia’s investing philosophy and strategy. Over the years, Vodia has grown to consider “impact” as another dimension of an efficient portfolio allocation. Whether it’s negative screening in fixed income and public equities, a positive screen that actively incorporates publicly-traded securities that target areas such as gender-diversity, or actively managed impact investments in its venture arm, Vodia has sought to build portfolios which incorporate impact across all asset classes.
Individual stock and bond selection: The most common method of incorporating impact is to screen publicly-companies based on their impact activities as an organization and impact strategies as a growing business. Gender diversity is a good example at the organizational level that helps to de-risk a company from making poor management decisions in challenging situations. Clean energy technology is a highly sought field of business growth that recognizes the massive investments countries and municipalities will be making in the coming decade.
- Exchange Traded Funds (ETFs): Over the past ten years there has been an explosion of passive index investing tools, also known as exchange traded funds (ETFs) that allow for exposure to various impact orientations using publicly-traded securities. Examples such as MPTC (iShares MSCI Global Impact ETF) and SHE (SPDR SSGA Gender Diversity Index ETF) are good tools to embed a passive impact strategy into a portfolio. In the case of MPCT, it tracks impact companies that derive a majority of their revenue from products and services that address at least one of the world’s major social and environmental challenges as identified by the United Nations Sustainable Development Goals.
- Private Equity offerings: Private equity funds can be some of the best tools to embed an impact strategy, yet the offerings can be difficult to incorporate into portfolios at modest levels because of traditionally low liquidity and varied levels of transparency. Vodia has worked closely with a handful of managers out of MIT to open these offerings at modest subscription levels while closely engaging with the funds’ management teams to best navigate the inherent risks for our clients.
- Vodia Ventures: Vodia has created two private pooled funds designed to invest directly into early-stage social impact technologies. These funds have been proving that social impact does not have to occur at the expense of return to LPs. While the funds are currently closed to new investors, we occasionally open special purpose vehicles for clients to participate in unique opportunities that we identify through our existing portfolio companies.
Individual Impact Aligned Investment Strategies
For those families and clients who want to align their values across their entire investment portfolio — whether held at Vodia or elsewhere — Vodia offers customized impact strategies. These tailor made strategies enable clients to clearly articulate values, identify social and environmental outcomes that they find meaningful, and source investment opportunities across the spectrum of asset classes and risk/return expectations.
The process of designing an impact aligned investment strategy entails the following:
- Impact Investing Education: As there are many misperceptions related to impact investing, we equip clients with an understanding of how to make impact investments without having to sacrifice financial returns. We lay out a framework which showcases the differences in approaches, definitions, questions of impact measurement, and impact reporting. Through ongoing education, clients stay informed of the changes and updates in the industry, including both tools and opportunities that are emerging with time.
- Articulating impact themes and values: We listen closely to your personal stories and interests in order to determine the sectors and impact areas which are most important to you. Whether its education, the environment, gender equality, or something else — we seek to learn what you believe creates long lasting value. Once clear impact goals or values are articulated, we can begin applying them to a tailor made impact investing strategy.
- Designing an Investment Strategy and Sourcing Deals: With well-defined values and impact goals, we can help design a portfolio that maximizes for both risk, return, and impact. We are then able to source out opportunities that best suit your investment and impact profile. Furthermore, for family foundations, we can develop strategies for both Program Related Investments (PRIs) or Mission Related Investments (MRIs) that supplement your traditional investment profile.
As with all strategies and intentions, the landscape is continually changing as environmental damage manifests, political regimes change and public attitudes adapt. Furthermore, the financial markets are continually bringing forth new products to address the perceived needs of the investing public, whether real or not. We at Vodia are always adapting with these changes, looking for the best ways to protect and grow our client assets in the context of impact, while maintaining stability of returns for our clients the balance the need to meet their long-term financial goals. Since our inception over a decade ago, the world has changed dramatically. We expect change to continue, and we will be here for our clients and families to manage that change.