2006 Moskowitz Prize

Judges seem to be finding it harder to choose winners. A good sign. The 2006 Moskowitz-prize winning article describes CalPERS' use of shareholder activism and its thoughtful and thorough writing supports the taxonomy for investors incorporating environmental, social and governance [ESG] factors by building a case from CalPERS, one of the foremost proponents of incorporating ESG in their investment strategy. The CalPERS CG mandate remains a differentiated investment theme, with about 11 money managers havuing active CG mandates, accounting for just under 2.5% of total CalPERS AUM. With such size, and seemingly controversial mandates, CalPERS is also one of the most closely watched [as a public instiution should be]. See also their coverage of issues like consultant's conflicts of interest, environment themes, and the oftentimes controversial economically targetted investments.

In a similar way, I am following with interest the situation in South Africa where the largest institutional investor, the Public Investment Commission [the investing arm of the Government Employees Pension Fund [GEPF] has ascribed to the UN Principles for Responsible Investing. Just last Friday on my way to speak at the Net Impact national conference in Chicago my Blackberry picked up this note re. addressing the issue of the wage gap, one of my personal interest issues.

Gap between rich and poor too high - Molefe
The gap between the lowest and highest paid in South Africa needs to be addressed urgently, according to Brian Molefe, the head of the Public Investment Corporation, which oversees the the largest retirement fund in the country, the R600 billion Government Employment Pension Fund.

As would be expected, the page hits and downloads of the winner are outstripping the two "honorable mentions". While I respect the need to cover the tobacco issue, I have little sympathy for the "ethics" of tobacco industry - even the tenuous arguments about poor farmers which I regard as patently paternalistic [ever tried eating tobacco leaves when the commodity price drops through the floor or the manufacturer chooses not to buy your whole crop?]. In another century I remember some philosophical and mercantile arguments were equally persuasive for slavery. The net of the paper matters little, even when I try and stretch to my best Machiavellian or Rand thinking - it is never worth another 100 or 700 basis points [risk-adjusted] even if you are the trustee trying to grow the healthcare institutions endowment to fund doctors to do explicitly good work. It's just not.

Monitoring the Monitor: Evaluating CalPERS' Shareholder Activism
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=890321
BRAD M. BARBER
University of California at Davis March 2006
Abstract:
Many public pension funds engage in institutional activism. These funds use the power of their pooled ownership of publicly traded stocks to affect changes in the corporations they own. Perhaps the most high profile activism has been pursued by CalPERS. In this paper, I review the theory and empirical evidence underlying the motivation for institutional activism. In theory, the merits of institutional activism hinge critically on two agency costs: (1) the conflicts of interest between corporate managers and shareholders, and (2) the conflicts of interest between portfolio managers and investors. While portfolio managers can use their position to monitor conflicts that might arise between managers and shareholders, they can also abuse their position by pursuing actions that advance their own moral values or political interests at the expense of investors. Which of these effects dominates the actions of portfolio managers will determine the value of activism and is an empirical issue. I analyze the gains from CalPERS activism linked to their focus list firms from 1992 to 2005. I document that CalPERS has generally pursued reforms at focus list firms that would increase shareholder rights. My best estimate, based on conservative short-term announcement reactions, indicates CalPERS activism has resulted in total wealth creation of $3.1 billion between 1992 and 2005. In general, I argue that institutional activism should be limited to situations where there is strong theoretical and empirical evidence indicating the proposed reforms will increase shareholder value. At times, institutions will be forced to take positions on sensitive issues (e.g., investment in tobacco firms). In these situations, I argue portfolio managers should pursue the moral values or political interests of their investors rather than themselves.
Paper Stats at 30 Oct 2006 7:22:
Abstract Views: 791
Downloads: 258
Download Rank: 11190

The Price of Sin: The Effects of Social Norms on Markets
http://search.ssrn.com/sol3/papers.cfm?abstract_id=766465
HARRISON G. HONG
Princeton University - Department of Economics
MARCIN T. KACPERCZYK
University of British Columbia - Sauder School of Business March 15, 2006
Sauder School of Business Working Paper
EFA 2006 Zurich Meetings
Paper Stats at 30 Oct 2006 7:20:
Abstract Views: 559
Downloads: 208
Download Rank: 13784

Is Doing Good Good for You? Yes, Charitable Contributions Enhance Revenue Growth
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=920502
BARUCH LEV
New York University - Stern School of Business
CHRISTINE PETROVITS
New York University - Leonard N. Stern School of Business
SURESH RADHAKRISHNAN
University of Texas at Dallas - School of Management
July 2006
Downloads
Paper Stats 10/30/2006 6:41 ET
Abstract Views: 141
Downloads: 68
Download Rank: 34566