LOS ANGELES — Gurtin Municipal Bond Management, a San Diego-based asset manager, is offering investors a suite of municipal bond portfolios with different risk profiles to support positive social and environmental outcomes.
While social conscience-directed investing has grown on the equity and corporate fixed-income side, the creation of such portfolios for municipal bonds has lagged, said Michael Johnson, Gurtin’s co-chief-executive officer and chief risk officer.
Gurtin wanted to be able to offer its clients socially -conscious investing options across the spectrum of asset classes – and since the firm specializes in the tax-exempt market, it seemed like a natural fit to create the financial product for its clients, Johnson said.
“With the vast majority of municipal bonds being issued to finance projects for the public good, the $3.7 trillion municipal bond market is a natural for socially responsible investment,” said Bill Gurtin, the firm's co-chief executive officer and chief investment officer.
The initial interest from clients in the just-launched financial product has been even stronger than expected, Johnson said.
Total U.S. assets under management using a socially responsible investing strategy grew to $8.72 trillion at the start of 2016, an increase of 33% since 2014, according to The Forum for Sustainable and Responsible Investment.
But some of the categories used for private equity and fixed-income don’t fit neatly with municipal bonds, Johnson said, so Gurtin had to create a platform that matched the muni market. For instance, while good governance is a rating category for bonds, board issues and human rights issues – two categories for social impact investing — don’t neatly fit municipal bonds.
The Municipal Social Advancement strategy is designed for “investors who wish to pursue competitive financial returns while supporting positive social and environmental outcomes,” according to the firm’s marketing materials.
Though it could be argued that all municipal bonds finance projects for the public good, Johnson said, he has rated a number of bonds “you would be surprised are tax-exempt.”
“Some mortgage-related housing bonds, at least for us, would not qualify,” Johnson said, nor would bonds supporting a coal-generated power plant. On the education side, bonds that support the construction of stadiums as opposed to items core to educating K-12 students wouldn’t make the cut.
“It would be easy to say a bond issued by a school or college is education-related, but you have to dig into the documents – and make sure it is financing something truly education-related and the infrastructure is being constructed in an environmentally friendly manner,” Johnson said.
The selection process has to be done on a project-by-by project basis, Johnson said.
“We have heavily used internally-created technology to find the bonds we want and manage the portfolios,” he said.
The strategy allows customization of separately managed municipal bond portfolios to align investors’ values with their investments.
Investors have the option to invest in bonds with a broad array of social purposes or maintain a more targeted focus on any of the three categories: education, the environment, or infrastructure. Or, they can choose a California or national focus.
It also offers portfolios with four different strategies for clients with differing risk tolerance including stability, ladder, intermediate, value and opportunistic value.