Trillium Asset Management Corporation, a Boston-based investment fee-only firm with 1,000 clients and about $1 billion in assets under management, got ahead of the crowd early in socially responsible investing and has endured, indeed thrived, for 27 years.
Since the late Joan Bavaria (1943-2008) founded the firm in 1982 with seven clients and less than $3 million in assets under management, Trillium has specialized in making money for its clients through sustainable and environmentally friendly investments.
Trillium is the oldest and largest independent investment management firm in the U.S. exclusively devoted to socially responsible investing. Its minimum account size for an individual portfolio is $2 million.
Bavaria began the Social Investment Forum more than 20 years ago, as well as the Global Reporting Initiative (GRI), which inspired sustainability reporting by hundreds of companies around the world. Meanwhile, the socially responsible investing formula of her company, one she honed during her days with the Bank of Boston's trust department, has proved so durable that the SRI world has since become a major force: According to Trends Report from the Social Investment Forum 2007, at year end 2006, $2.7 trillion was invested using the social screens Trillium has always applied. (The forum's 2009 report with yearend 2008 figures hasn't been released yet.)
Bavaria began these efforts when she was an investment officer in the 1970s, when she listened to customers who said they wanted no part of investing in manufacturers of Agent Orange defoliant used during the Vietnam War.
Challenged by her clients to find alternative investments, she started keeping performance records and surmised that socially responsible investing and making money were not contradictory impulses. She also discovered she couldn't make companies clean up their acts by simply eschewing their stock. Instead, dialogue offered a more effective tool for change.
She founded the company that would become Trillium in 1982, first as Franklin Research and Development, in Boston. It took its first account in 1983. It had $3 million in assets by the end of that year, $10 million by the end of 1984. From the beginning, Franklin had a mandate of only investing in socially responsible companies. Her formula has been both to "do good" and "do well."
Trillium has during its lifetime coaxed industrial giants and corporate behemoths such as Intel and Home Depot to leave a lighter, sustainable footprint on the planet. The firm also sponsors symposiums and foundations seeking ways to be both prosperous and protective in investing.
Nowadays, it is typical to see companies fly the flags of corporate responsibility and environmental concern. Trillium itself is a firm that walks the walk. According to Cheryl Smith and Adam Seitchik, who have taken over stewardship of the company as co-CEOs since Bavaria's death in 2008, Trillium is "by design, a great place to work, a workplace that recognizes the value of employees."
Smith and Seitchik, both CFAs, also both hold PhDs in economics-she from Yale, he from Boston University. The company employs about 40 investment analysts, portfolio managers and staffers, 25 at its Boston headquarters and the rest in field offices.
Job promotion is one source of pride at the company. Another is benefits. Trillium, Smith says, "offers employees a robust, comprehensive set of benefits for a firm of our size,'' including "a cost-sharing arrangement for our health plan; dental insurance; short and long term disability insurance; domestic partner benefits; maternity/paternity/adoption leave and a day off for an employee's birthday." Employees are invited to participate in organized community service projects that the company participates in.
Employees also can make suggestions about flexible work hours, child care and the like through an operations governance committee that reviews all proposals. A Green Team, made of activist employees seeking to improve the company and help the planet, was formed out of a governance committee suggestion. It strives to "work towards aligning our practices with our mission.''
One way Trillium practices what it preaches about the environment is by paying its employees a monthly stipend of about $90 to not drive an automobile into Boston's center city. Trillium's office, a converted leather factory, is near the South Station hub. "Every single Trillium employee in Boston arrives by public transportation or their feet," says Smith. "Adam takes a bus to the subway. I walk to the subway."
Trillium also encourages good citizenship among its employees: It donates two hours per week of work time for employees to volunteer for non-profit groups. Such groups may address farming issues, gay rights, animal protection, adult tutoring and young parent education.
The company matches employee fund-raising for approved nonprofits dollar for dollar up to $300. And it makes after-tax payroll deductions available for community works. Furthermore, it donates 5% of before-tax income to charities chosen by employees.
Employees control about 55% of Trillium's stock, while 7% is controlled by an independent board of directors, 2% by former employees and consultants and 36% by Progressive Securities Corp., a subsidiary of Wainwright Bank, in the form of nonvoting convertible preferred shares.
Although Bavaria wasn't specifically trying to craft a firm for women, females have thrived and risen to the top of the firm, Smith said, where they represent a majority of Trillium's owners-11 out of the 20 listed in the company's 2008 ADV. One of them, Pat Davidson, a vice president in the San Francisco office, has been with the firm since it opened its doors, working as Bavaria's longtime assistant. She is Trillium's second-largest shareholder, Smith says.
"A woman in this sector was highly unusual when I started in 1987," says Smith, who left the company for a while but then returned in 1997. "I would go into [financial] society meetings or management presentations, and I was routinely the only woman in the room. ... Joan was careful not to promote the idea that women only could be in the majority in ownership and operation. But the process of social and business integration [at Trillium] was attractive to women."
Receptionist Rita Zukauskas says Trillium is a firm "that revels in its diversity,'' and is an employer that regularly brings staff together at retreats, outings and holiday parties.
Diane DeBono, director of operations, joined the company in 1987. "We got to manually mail the newsletter and wash dishes and take turns answering the phone. We also actually discussed what language our mission statement would have. It was truly to be a mission, not a marketing piece. In the ensuing 20-plus years, I have been involved in discussions regarding products, systems, personnel, culture, location, vision, ownership and entertainment! In each of these cases, the basic respect for our mission, our clients and each other has remained constant. This has taught me what it means to have ownership in your beliefs and your deeds,'' DeBono writes in a company newsletter.
Taking Care Of Clients
Seitchik, who has been with the firm since 2004, says Trillium has also succeeded because it believes in taking care of its clients. "Nothing has helped us prosper more than the way we pay attention to client services," he says. "In many respects, that is our criteria for success. The phone rings: We want to talk about your portfolio. You need cash? You get it the next day. We answer our phones and we put you directly in touch with your portfolio manager. There's nothing between the client and the portfolio team."
Seitchik and Smith say the typical Trillium client is very, very loyal, and not a "hot money" client. Rather, they are people committed to what the firm is doing. Until the early 1990s, clients were most often third-generation trust-fund investors whose parents and grandparents had made money. "But in the past ten years, we are seeing a lot more people who have been entrepreneurs, have worked in a company and accumulated a sizable net worth through that," Smith says.
About 70% of Trillium's clients are high-net-worth individuals and families, and 30% are institutions. The institutions consist of religious organizations, endowments, foundations, nonprofits, and a mutual fund that the firm subadvises. The average client is in his 40s and 50s, though Smith says she also has three clients who are taking required minimum distributions from their IRAs and three who are over 72½.
"Also, the creative class is attracted to our kind of investing," Seitchik says. "They made their own wealth but not in the narrow business sense: They are musicians, artists, writers, etc.-people who want to be holistically inclined in the way they think and invest."
A clue to the way the firm deals with the stocks in which it invests can be seen in the way Trillium has worked with Intel, the semiconductor giant. Intel has a southwest production plant requiring enormous amounts of water, and after hearing from local activist groups concerned about the environmental hazards posed by runoff, Trillium went to the company.
"They realized the effect of residual water outflow from the plant, and they fixed it so that now water comes out the back end of the factory cleaner than it went in," Smith says. "It's perfectly usable water. That was 15 years ago. It was a five-year process of coming to realization."
When a dialogue doesn't persuade management to be conscientious, Trillium will reconsider its investment in a company and perhaps sell its holdings. Major retailers such as Home Depot, Lowe's, Staples and Office Depot that sell paper and timber have agreed to start working to protect large-growth forests. Trillium's Bavaria also cofounded Ceres (the Coalition for Environmentally Responsible Economies), which works to promote both corporate reductions in greenhouse gas emissions and greater business support for U.S. federal action to stem the risks of global warming. Corporate giants such as Ford, GM, AIG, AEP, PG&E and BP have been responsive.
Patience has been a factor in the Trillium success story, too. "We are taking the whole idea of sustainability to a longer-term view," Smith says. "You have to think that a sustainable economy is one that moves away from short-termism and short-term thinking.''
Its Core Equity pool aims for growth at a reasonable price and is diversified across 10 sectors. Portfolios are designed to be consistent with the client's social concerns. The stock selection process emphasizes companies making a positive contribution to society and the economy; however, no stock is added to the buy list without rigorous financial analysis that reveals superior investment attractiveness. Internal risk controls include limiting exposure to any single issuer to no more than 5% of total portfolio value, and using a proprietary process to reduce variability from its S&P 500 benchmark and across portfolios. Largest holdings at December 31 included Apache, Procter & Gamble, General Mills, BP, Oracle, Hewlett Packard, Johnson & Johnson, Genzyme, IBM and W.R. Berkley. The composite investment return for the strategy was -33% last year, compared with a decline of 37% for the S&P.
"We're on the conservative side for core equity, but there are environmental funds that we have that have very high growth performance. Our overall investment style is consistent time and time again, period after period," Seitchik says.
The firm also offers a core-equity balanced strategy, as well as large-cap, mid-core, small-cap and international options. Trillium's also offers a Sustainable Opportunities strategy, which it describes as "a broad universe of companies highly responsive to the global challenges of climate change, water scarcity, resource constraints, wealth disparity, disease and conflict." That nonbenchmarked strategy is for investors with a long time horizon and willing to accept higher-than-average volatility. Some holdings include Baxter, Chipolte Mexican Grill, Green Mountain Coffee Roasters, IBM, Itron, Pentair, PowerShares Global Clean Energy ETF, ProLogis, Royal Bank of Canada and SunPower.
This year, the firm began offering Trillium Sustainable Ventures, an investment portfolio program whose team is led by Eric Becker. It's open to only 99 investors, who must make an initial investment of at least $2 million to get into the fund. Investors in this program are able to tap into a variety of venture portfolios-"from really positive environmental clean technology funds to global health-care funds to consumer companies,'' Smith says.
Looking at the future in the middle of the economic crisis, a Trillium Web site brochure says it has a "very favorable" view on the value of stocks in the long term, but it also says, "Our stock-buying thus far has rather been in service to rebalancing portfolios to a neutral posture."
Until the market bottoms out, Trillium is underweight in energy and financials. It has reduced holdings in health care and consumer staples and "anticipates building up technology exposure during the first half of the year, as these shares tend to run when the economy first starts to recover."
Says Smith: "All of our clients are concerned and interested in social investing and making positive investments, whether from the community perspective or ecological perspective or equity perspective. And isn't it nice to make money, too?"