If your livelihood depended on the quality of your advice, wouldn’t you be your own best customer? Maybe not, especially if you’re a fund manager, according to a new study from Morningstar. Their analysis of SEC-required disclosure of managers’ holdings reveals some surprising numbers:

“In U.S.-stock funds, 47% report no manager ownership. And it gets worse from there. Fully 61% of foreign-stock funds have no ownership, 66% of taxable bond funds have no ownership, 71% of balanced funds put up goose eggs, and 80% of muni funds lack ownership.”

Should investors be concerned? Investment News quotes Morningstar’s Russel Kinnel:

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PIMCO’s Bill Gross devotes his June Investment Outlook to “the debate about the authenticity of U.S. inflation.” Gross says that this debate “has been joined by the press and astute authors such as Kevin Phillips.” (Gross calls Phillips’ new book “Bad Money,” which was excerpted in a recent Harper’s article, “as good a summer read detailing the state of the economy and how we got here as an ‘informed’ American could make.”)

Gross describes a study that compares U.S. inflation with that of 24 other nations:

These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.

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Mainstream investors are reportedly only interested in environmental, social and governance (ESG) issues that will have a “material” impact on the company (higher or lower profits) — more specifically a near-term impact. On the other hand, traditional ESG investors do not want to invest in companies that have a negative impact on society or the environment — that are a risk to the community and ecological balance, not just to that company.

Social investors often assert that companies that manage their social and environmental responsibilities will ultimately do better financially. Sometimes it turns out, however, that the negative ESG risks are not material risks to a company in the short term.

Laws and regulations have not caught up with the latest externalization of impacts. Even where they have caught up, the legal costs and regulatory fines are often minimal as a percentage of revenues that can be obtained by ignoring and externalizing these impacts.

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According to The New York Observer, the Blackstone principals were not on the floor of the New York Stock Exchange when their IPO opened.

But The Man in The White Suit was. Tom Wolfe, legendary author of among others The Bonfire of the Vanities was making his first visit to the Exchange floor.

“All the years I’ve been in New York, I’ve never been on the floor of the Stock Exchange. So, a friend of mine, who knows a member, got me invited. I’m walking around and I see these television cameras. Somebody in the television crew spots me. I don’t even know where he was from. So, he says to me, ‘What do you think of this Blackstone I.P.O.?’ I’m joking, I say, ‘I think it’s the end of capitalism as we know it.’”

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I was part of a panel discussion that addressed strategies for responsible international investing at last week’s Green Mountain Summit on Investor Responsibility. Since the focus of the panel was on the challenges and opportunities of both the research and product side of the equation, I thought that an informal overview of current retail mutual fund offerings available to U.S. investors would be a valuable framing exercise.

As sources for the overview I used the U.S. Social Investment Forum (SIF) directory, Morningstar’s socially responsible investing fund screener and the web sites of fund sponsors. I excluded alternate share classes when they existed and focused on funds available to U.S. investors that had global or international exposures, regardless of whether or not the exposure was explicitly part of the funds’ investment objective.

The results of this exercise are summarized below. I found just 14 funds for responsible investors that had global/international exposure, 10 of which had explicit mandates for such exposure. I included three funds that are not branded as socially responsible investing (SRI) funds, but would appeal to responsible investors because of their emphasis on environmental factors.

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Herewith from Fox News via London’s Sunday Telegraph the latest example of the exposure of inconsistences – at least in the eye of the beholder – between a foundation’s mission and its investments:

SHE PROVIDED the finale to yesterday’s Live Earth concerts, even writing a special song to mark the worldwide musical event. But instead of being lionised, Madonna found herself accused of hypocrisy after allegations that she has financial links to some of the world’s biggest polluters.

The Ray of Light Foundation, a charitable fund established by the star to support her favourite causes and named after one of her biggest hits, has $4.2 million … of shares in a string of companies including Alcoa, the American aluminium giant, the Ford Motor Company and Weyerhaeuser, an international forest products company. All have been criticised by environmentalists.

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The Congress of the United States spent more than two years on ERISA, the Pension Reform Act of 1974, hearing countless witnesses, conducting dozens of studies, and considering a raft of alternative proposals. Yet there is not one mention in those thousands of printed pages of the social or political implications of the pension funds, and very little concern for the economic impacts, on capital market or capital formation… -Peter F. Drucker (1976)1

The Ontario Teachers’ Pension Plan led a successful group of bidders for Bell Canada (BCE)2 on June 30. According to the New York Times (July 1, 2007), ‘The deal for Bell Canada, worth about 51.7 billion Canadian dollars ($48.8 billion), would be the largest leveraged buyout ever.’

The Canadian Pension Plan Investment Board put BCE in play, and a number of other large Canadian plans indicated interest in bidding before withdrawing.

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I had great fun teasing Peter Kinder today about a typo in an article published by Forbes. The piece mentions that KLD’s Domini 400 Index has averaged an annual return of 12.7% since its inception back in 1009. I asked Peter if William the Conqueror was an original investor.

Kidding aside, the Forbes piece is interesting as it mentions that while interest in hedge fund investing by wealthy individuals has dropped 10% over the past year, SRI assets acquired by the same group have tripled since 2005.

I never thought I would see the day when Forbes would downplay hedge funds to boost “SRI and ethical investing”.

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Some things I read just mystify me.

FinancialNews-US.com reported on June 27 that former US Vice President Dan Quayle had joined the board of Heckmann Corp., which it described as a ‘blank check’ company. It continued:

‘Blank [check] companies, which have no defined business plan and are set up to buy an unspecified company or assets, have become increasingly popular in the last couple of years, but have been controversial because investors do not know what they are buying.’

Controversial?! A number of other words came to mind.

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Whatever the rights and wrongs of mission-related investment, the bad press of the past few weeks may mark a shift for the foundation, into an era when public opinion no longer takes for granted that giving alone is virtuous. -The Economist (2007)

By May the uproar caused by the stories in January about the inconsistencies between the Gates Foundation’s investments and its programs had subsided to a dull roar. The story then exploded again around Warren Buffett’s coming $31 billion contribution to the Foundation and his company’s investments and Darfur.

It seems, therefore, the right moment to take stock of some lessons to be drawn from the renewed furor.

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