Social Funds Tie Pay to Impact

Tuesday, December 6, 2016

Plenty of investment professionals have their compensation tied to hitting specific financial targets. But does that metric make sense for increasingly popular socially responsible funds?

As these funds attract investors, some of the firms behind them have decided to tie the compensation of their portfolio managers to the impact the investments have made. The reasoning is clear: Investors in these funds are hoping to have an environmental and social impact, and managers’ compensation should reflect how well they achieve those goals.

Skeptics, however, question the effort. For one thing, measuring impact is a tricky endeavor. And second, they worry, such a compensation strategy could reduce returns significantly, as fund managers pursue doing good at the expense of doing well.

 Right mix: “Compensation has to be very carefully designed so that you’re creating the right enticements for behavior,” says Betsy Moszeter, chief operating officer at Green Alpha Advisors, an asset-management firm that focuses on sustainability and has one of the more advanced impact-based compensation structures among fund managers.

Source: Wall Street Journal (link opens in a new window)

Impact Assessment, Investing
financial inclusion, impact investing