Higher Correlations – The most recent period is one in which there was very little difference in stocks’ performance; the good, the bad and the ugly moved in tandem. This lack of differentiation made it very difficult for long/short equity managers who are focused on discerning which stocks can do well and which stocks will do poorly. In an environment where stocks all move together, these managers are unable to deliver outsized returns versus the market. The one silver lining is that over time it is rare for this situation to continue (see chart below).  Stocks will eventually begin to trade based on their own specific characteristics (i.e. cash flows, balance sheets and valuations) as the market moves away from the wholesale buying and selling of all stocks in the “risk-on/risk off” trade.

Source:  NBER, Empirical Research Partners

Quality Underperformance – Many long/short equity managers also focus on being long higher quality securities and short their weaker brethren. This strategy has been a recipe for underperformance in the last few years as quality stocks (seen below by S&P category) have consistently underperformed since 2009, albeit with a slight trend change beginning in April of 2011. This factor along with the correlation data in the chart above leads us to believe that we will see an improvement in returns in higher quality stocks that should translate to improved long/short equity manager performance, but it may be a slow process.

Source: Bloomberg, CSIM Analytics

Passive Indexation - Passively managed assets are now approximately 40% of the size of the actively managed mutual fund universe.  Because of this increased trading commonality, you now see greater systemic fluctuations in the market.

                  Source: “How Index Trading Increases Market Vulnerability”

FAJ, March/April 2012, Sullivan and Xiong

• Ultimately, the rise in passively managed indices corresponds to a rise in systematic market risk and challenges the investment philosophy and process employed by many fundamentally focused hedge fund managers.

                  Source: “How Index Trading Increases Market Vulnerability”

FAJ, March/April 2012, Sullivan and Xiong

Equity Long/Short Weakness – The Equity Hedge Index includes higher net long funds, short biased funds, market neutral funds and quantitative/directional funds. A focus on the funds that invest primarily in stocks is the one consistency. As discussed in earlier points on higher correlations and quality underperformance, these managers have suffered in the past year and have not delivered the lower correlations inherent in the strategies at other times over the past two decades.

Source: Morgan Stanley

• These higher correlations beg the question: Are you now only getting market beta from the hedge fund world?  The returns below would lead you to believe that historic hedge fund alpha has been diminished by the factors noted earlier in this article, and now, you are merely getting beta disguised as alpha (i.e. you‘re paying high fees for market returns).

Source: Morgan Stanley

• In addition, multiple hedge fund strategies, except for Global Macro (see below), are starting to display greater correlation to the S&P 500. This fact leads us to believe that going forward investors may not be getting the true diversification benefits that these strategies have historically provided.

Source: Morgan Stanley

The Big Get Bigger – Another major trend in the industry has been the manner in which the largest funds garner the greatest proportion of assets. Similar to the long only mutual funds of the 1980s and 1990s, the larger funds have seen significant asset growth based on their systems, processes and the ability to accept larger mandates.

Source:  Common Sense, HFR Global Hedge Fund Industry Report

• Our question is: Can these funds deliver similar returns with significantly larger asset pools? For most, we would say it is impossible, as a larger asset base means fewer investable opportunities. That being said, there are certain portions of the hedge fund universe, such as global macro, where markets are deep enough to sustain even the largest funds.

Asset Flows by Firm AUM (FY 2011)

Source:  Common Sense, HFR Global Hedge Fund Industry Report

In conclusion, hedge funds, like other alternative assets, are not a panacea for overall portfolio risk control. They serve an important role in portfolios, but over any short term time period, they may fall well below expectations on an absolute return basis. That being said, our research tells us that there are important implications for the use of hedge funds in portfolios and investor expectations for these funds over the long term.

First, certain hedge fund managers have the opportunity to deliver lower volatility and positive absolute returns in an environment where equities remain in a secular bear market and generate mid to high single digit returns for a multi-year period, while the fixed income market remains on the precipice of a bear market that will dramatically lower expected returns in the asset class.  Emerging managers and global macro managers are of particular interest as they are unfettered by the size issue (AUM) or the exposure to purely the domestic equity market.

Second, over the long term, hedge fund managers still offer a more compelling opportunity than long-only active managers based on their motivation via compensation/structure, leverage and short selling capability.

Long-term Return Comparison: HFRI FOF Composite vs. the S&P 500

                                    Source: Balentine, HFR, Factset (2012)

Finally, given the higher expected correlations (ETF effect) and the size of many hedge funds (AUM effect), it will be harder for the average hedge fund, and therefore fund of funds as well, to generate absolute positive performance akin to what they have historically.

Cumulative Performance: HFRI FOF Composite vs. ACWI (2000-2011)

                  Source: Balentine, Factset (2012)

Nevertheless, we still believe that select managers with the appropriate mandate can deliver the returns required by investors. However, to receive those returns, investors must be patient. The most recent period is not unlike 1970, when investors would have needed similar fortitude to maintain their investments. Thus, we are comfortable continuing to overweight the Manager Skill building block as long as we think public equities are in a secular bear market (see our 2012 Capital Market Forecast). While we think 2011 was disappointing, albeit explainable (as some reversion in Q1 2012 tentatively suggests), our conclusion will not stop us from continually trying to improve liquidity, transparency and simplicity in the Manager Skill building block to improve flexibility in the future.

“Bears should have had a fine time in the 1969 market.  But some got clobbered on their shorts while being murdered on their longs.  Worse than that, the SEC is moving in as Hard Times Come To The Hedge Funds.” 

– Carol Loomis, Fortune, January 1970

Biggs’ quote is a testament to the challenges of an industry where you are only as good as your last day, month, quarter or year’s performance. Because most active managers share this view and fear, they unconsciously (or sometimes even consciously) begin to spend more time worrying about their relative performance benchmark. As David Swenson notes in Pioneering Portfolio Management, “Managers of all stripes face the temptation to become closet indexers. Running a market-like portfolio guarantees market like results, reducing the likelihood of being fired for poor performance.” This reality has led us to adopt a passive bias as we implement in our Market Risk building block (i.e. the public markets). In contrast, we reserve active fee payment to those managers who truly adopt a long-term absolute return mantra for our Manager Skill building block.

When we do use active managers, we look for attributes such as:

• Long-term time horizons,
• Absolute return focus,
• The ability to short sell securities,
• The option of pursuing global opportunities and
• The capability of moving to market neutral positions.

These characteristics typically lead us to hedge fund management. It’s not to say that a long focused manager is unable to manage according to these tenets; it’s just that very few are willing to do so. The data below tell the story:

Percent of all active funds in category that outperformed the category’s index

Based on the characteristics of the funds we employ (i.e. absolute return focus, global opportunity set, etc.), our view of Manager Skill has been as an opportunistic, risk management position.  In other words, we believe that a diversified mix of both directional and diversified hedge fund managers should ultimately deliver returns (see Balentine’s 2012 Capital Markets Forecast) that are an improvement to fixed income, while somewhat less than equity returns over an extended period. Additionally, they will generate volatility that is slightly greater than fixed income but well below equities.  As an example, the Alternative Investment Management Association (AIMA) notes that since 1994 the average hedge fund has generated a standard deviation (volatility) of 7.2% versus global stocks at 15.7%.  Thus, the Manager Skill building block could be best described as a shock absorber for the overall portfolio, despite the fact that it may not perform as one in any given quarter or year (2011 being a prime example).

In this two part blog series, our goal is to examine these ideas in more depth.  While we are firm believers in reversion to the mean being a benefit (i.e. higher returns after weak returns in the recent past) to the investment industry, we recognize the need to constantly challenge our assumptions to improve the overall outcomes in our portfolios.

Alfred Winslow Jones, the pioneer of the hedge fund industry, started A.W. Jones and Co. in 1949 after a successful career as a journalist. In doing so, he decided that investors were better served by employing hedged investments whereby the manager took long and short positions which netted to be market neutral and allowed investors to use “speculative techniques for conservative ends.” As Jones once stated in an interview, “The logic of the idea was very clear.  It was a hedge against the vagaries of the market.  You can buy more good stocks without taking as much risk as someone who merely buys.” While Jones’ strategy was the genesis of the modern hedge fund industry, the world has changed mightily in the past 60 years.

Hedge funds are now characterized by a host of different strategies and philosophies. Broadly speaking, hedge funds can be defined as those funds that pursue:

• Diversified Mandates
• These funds attempt to neutralize market (systematic) risk.
• Directional Mandates
• These funds will maintain some elements of systematic risk but also try to exploit idiosyncratic opportunities.

More specifically, as the chart below illustrates, these strategies can be characterized as:

                                    Source:  Emory Center for Alternative Investments

While the last few years have been somewhat frustrating for hedge fund investors, the longer-term performance has more than made up for recent weakness. It is not unlike the world that Carole Loomis foresaw in 1970 when she penned “Hard Times Come to Hedge Funds.” In this piece, she notes, “The 1969 experience has been a rude awakening for many hedge-fund investors and has left some of them with strong reservations about the whole concept…in fact, some (i.e. the funds) have suffered large withdrawals of capital and a few have actually folded.” Insert 2011 for 1970, and there would be a mirror image of the attitude of many hedge fund investors today.

Performance in 2011 was, quite frankly, abysmal for hedge funds. While the S&P 500 was up approximately 2.1% in 2011, the average hedge fund, as measured by the HFRI Fund of Fund Composite, was down over 5%. This weakness came in a market environment that was highly volatile, which theoretically should have been a plus for hedge fund managers.  Instead, the managers found themselves in protection mode in August and September and were then unable to change fund positioning to capture the sharp, upward reversal in October and November. Thus, they were caught with low net exposures and not enough “beta” to capture the market upturn.  Investors look back on the year and rightfully ask, “Why am I paying such high fees for such poor performance?”

As with most situations, understanding the outcome (poor performance) requires greater examination than what is readily available in the popular press.  In anticipation of investors’ questions, Balentine’s Investment Strategy Team actually created a questionnaire that we required all of our managers to complete to challenge and validate their cost and liquidity structure, as well as the reasons for performance (whether good bad or mediocre) in the most recent time period. Through the review of the most recent time period, the analysis of the returns for the hedge fund industry in the short and long run, and the evaluation of a number of compelling academic studies on the topic, we established a number of key ingredients that became the recipe for weaker than expected returns in the last few years.  In part two of “Manager Skill:  Through the Looking Glass,” we will discuss the key ingredients in detail behind the performance of 2011 and our long-term conclusions about our Manager Skill building block.

Balentine Chief Investment Officer, Adrian Cronje recently participated in a CIO roundtable for The Journal of the CFA Society of the UK. In this roundtable for the Professional Investor section, Adrian and other CIOs from venerable institutions discussed strategies for getting the right information for effective decision-making.

From how to separate reliable information from the rest of the “noise,” to best practices when performing investment analyses in uncertain times, Adrian Cronje shares his best thinking for focusing on issues you can control and measuring what matters.

As Adrian explains in the piece, “While exercising patience, it is important to focus on what you can control in this volatile investment climate. What you can control is the amount of risk you take, the liquidity levels in portfolios, spending and distributions you allow from your portfolio, the attitude you take toward rebalancing (agnostic calendar driven or more opportunistic?), the cost and fees and taxes you pay to implement and finally what and how you communicate with clients.”

Click here to view the full CIO roundtable interview from the Spring 2012 issue of  The Journal of the CFA Society of the UK, courtesy of www.cfauk.org.

To learn more about whether elections really matter long term and investment solutions for these times, watch “Risky Business: Election Year Economics and Market Implications”.

For the past several decades, we have spent too much, saved too little and lived beyond our means. As is usually the case, the debt we incurred along the way will need to be repaid, or else we risk default. By continuously kicking the can down the road, Congress has avoided default so far, but how do we get ourselves off this carousel of debt and default worries?  There are three possible solutions:

1. We can grow our way out of it.  Even with first quarter results that suggest a stronger economy, we still face considerable economic headwinds, including the consumer’s personal financial circumstances. As indicated below, Americans’ overwhelming levels of debt are a key component of this balance sheet recession[1]:

• 46% of Americans carry a credit card balance, and the average balance on credit card debt is $14,000.  With average interest rates of 14% and minimum payments, it will take 27 years to pay this debt off.
• 46% of auto loans are for more than 6 years, and almost half are to sub-prime buyers.
• Mortgage debt amounts are five times higher than they were two decades ago, and over 8 million Americans are at least one month behind in their mortgage payment.

Such high levels of personal debt will continue to create a drag on Gross Domestic Product (GDP), making it difficult for us to grow our way out of this deleveraging cycle.

2.  Foreclosures offer a second way out of this morass. Foreclosure occurs either involuntarily, when a lender takes back an asset, or voluntarily when prices reach a clearing level, and willing buyer and willing seller agree on a price that establishes a foundation upon which growth resumes. Using housing as a microcosm of the broader economy, many are now speculating that housing has bottomed out. For the past five years, we have seen housing prices consistently reach new lows, only to break through and sink even further.  Ultimately prices become attractive enough to create demand, and banks or other entities are able to shed these assets from their balance sheets.

3.   Currency debasement – printing money to pay off future debts – offers the third way out of this balance sheet recession. As the old saying goes, money doesn’t grow on trees, and printing money – currently debasement in its most extreme sense – comes at a cost. From post-World War I German citizens using wheelbarrows of cash to buy a single loaf of bread to the $1 trillion bill from Zimbabwe I carry in my wallet, we have seen the toll currency debasement takes on countries that print too much money to cover their debts. Though we are not at that extreme yet, we are already seeing the effects of printing money create financial repression where negative real rates of interest are penalizing the savers.

As a result of this deleveraging cycle, we believe that we are in the beginning phase of a secular bear market in bonds.  As Jim Grant says, bonds, once known as providing a risk-free return, today are more likely characterized as offering a return-free risk, when inflation effects are taken into account. Through the first quarter Barclays Capital Long-Term Treasury Bond fell 5.8%, the worst starting quarter since 1996.

Though there are still massive headwinds that will continue to dampen growth in the developed world, we are confident in our investment process. Our Investment Strategy Team has positioned portfolios to be defensive against risk and nimble enough to take advantage of the upside of market performance. As a result, over the last two quarters, our efforts at tactical rebalancing have added value to portfolios.  To our clients, thank you for your continued confidence in us; we will continue to deliver our best thinking and do everything we can to validate your choice.

Over the last 30 years, and especially in the aftermath of the 2007-2008 financial crisis, China has led the global economic recovery, and its unparalleled growth has influenced risk markets, publically traded commodities and natural resources. However, during this period of extreme growth, many have expressed concern about the underlying health of China’s economy, raising the possibility of a credit bubble and questioning whether China has a banking system that is adequately capitalized to sustain a further correction in real estate prices. Further, many have asked whether China can continue to contain inflationary pressure. As we discussed in our 2012 Capital Markets Forecast, while these are issues to watch, we do not think they will permanently impede China’s long-term growth or impair its economy for the following reasons:

• The banking sector loan quality does not pose the risk that some investors fear. Chinese banks’ system-wide loan-to-deposit ratio is around 65%, dramatically below its pre-crisis level of more than 100% and the global average of 110%. This indicates that the deposit rich banks have an ample reserve of cash tor protect against large losses.

• We have long argued that a bubble exists in the Chinese housing market. The average home price to household income ratio in China’s top tier cities is more than 20 to 1, five times the international average. The home price to rent ratio stands at 500 to 1 compared to a global ratio of 300 to 1. Those who follow the Chinese housing market should not be surprised by a correction as deep as 20-30%, but we do not ultimately believe a crash-like scenario will occur in the near term. Chinese urbanization trends are likely to continue over the next two decades, and the projected 310 million new migrants are likely to absorb the spare housing supply.

• Although inflation, especially food inflation, has always been a serious issue in emerging countries based on historical standards, today’s inflation level in China is largely under control. Further, rising inflation levels had reversed in the past months.

We believe that over a multi-decade period, China’s needs (based on pure demographics) will override any short-term issues with which they have a lot of flexibility (low levels of overall debt, sizable foreign exchange reserves) to deal. As China moves into a slightly lower, but still expansionary stage of growth, the challenge for authorities is how they balance growth against the expectation of higher wages as per capita income rises, especially since the wealth effect on consumers is far less than in the developed world, due to much lower ownership of financial assets on individual balance sheets.  In a recent survey on China’s business climate published by the American Chamber of Commerce in China, of the 390 senior-level management executives interviewed, 89% stated that China is already starting to lose its competitive edge due to higher wages and benefits. This structural issue is the real challenge Chinese authorities need to navigate, otherwise social unrest could become an issue, as it has over the last year in the Middle East. They have ample flexibility to change policy to avoid a cyclical downturn – even a sharp one – resulting from a policy mistake or a deteriorating economy.

Click here to listen to Adrian’s interview with Executive Talk Radio.

Progress in the European debt crisis and better US economic data over the last three months have led to significantly less market volatility. As risks to the near-term outlook have abated, momentum in global equity markets has accelerated. Based on the long-term attribution of our returns, such an environment typically provides a compelling backdrop for us to harness the power of our quantitative models (the “Science” component of our “Art and Science” approach), because during such “normal” market environments, underlying asset class performance trends persist for longer. Over the last two years we have exposed portfolios to as much “Art” as our portfolio construction rules would allow – a good decision given the volatile environment that unfolded.  However, due to the normalization of market environments, we believe now is a good time to take profits in some “Art” areas to fund the opportunities our “Science” models are signaling.

While our models in general still lean towards emphasizing domestic exposure within Market Risk, they have warmed to certain international equity markets. Compared to both large and small-cap domestic equities, Emerging Market equities are less expensive than they used to be due to a period of severe underperformance in 2011. In the last few months, momentum has picked up, and it has accelerated over the last month.  Though Emerging Market equities are vulnerable to a European banking crisis, the Long Term Repo Operations (LTRO) the European Central Bank first undertook last December have significantly reduced this risk.  The LTRO has provided abundant liquidity and a back-stop to the banking system while politicians continue wrangling about the long-term structural reforms that are necessary to underpin the Euro. In early March, the combination of these factors led us to establish direct exposure to an asset class with one of the highest expected long-term returns in our 2012 Capital Market Forecasts.

In order to fund the allocation to Emerging Market equities, we eliminated exposure to gold bullion. We first established exposure to this Art-based theme in 2010, and when we published “Gold: Dr. Pangloss or Chicken Little?” in May 2011, gold had reached a 50 year high at $1,535 an ounce.  Gold continued its historic rise, reaching a price of nearly $1,900 late last year.  On average, it maintained a price of above $1,500 an ounce in 2011, as investors rewarded its hedging abilities against uncertainty in general and in particular, the continued debasement of paper currencies in the developed world, as we mentioned earlier this year.

Although the long-term indicators we monitor to exit gold bullion remain intact (negative real interest rates, positive fund flows from central banks and a slow steady devaluation of US dollar persist), over the near- to medium-term, gold looks overbought. The Federal Reserve has also acknowledged the positive developments in the US economy, making additional rounds of quantitative easing in the near future less likely. If recovery falters and Central Banks resort to further rounds of printing money, we may well allocate to this Art based theme again in the future. But for now, we judge that the combination of emerging market bonds, stocks and commodities – all good hedges against the debasement of fiat currency in the developed world – are sufficient to protect against the current stance of  monetary policy in the US, Europe, UK and Japan.

Managing cash is an important component of risk management. By “immunizing” near-term spending requirements in an appropriate way (which is a bit more involved than simply storing money in a Maxwell House can), Balentine helps clients pursue their long-term investment goals while maintaining a pool of assets and reserves.

Last fall in our piece, “When Cash is King,” we outlined Balentine’s reasons for holding cash and other liquid reserves and our process for determining how much to hold at any given time.  In part two of our discussion, we will discuss how and when to refund cash and implementation options for this part of the portfolio.

How and when should a cash reserve be refunded?

While there is a clear need to hold cash, it is also important to develop a plan for refunding a reserve. The frequency and the source of replenishment for this reserve ultimately dictate when and how the cash should be refunded. Where the fund is sourced will determine when to refund. In an neutral risk environment, by holding the second year of spending needs in safe assets, the probability of having to refund the cash reserve from a severely depreciated asset class is greatly reduced. If the situation were reversed and safe assets were underperforming, then riskier assets should be the source of funds.  At worst, this creates a choice between two uncorrelated asset classes and requires “forced rebalancing.” This forced rebalancing affords the opportunity to sell high and buy low. By refunding the cash reserve from the better performing asset class, the portfolio is selling appreciated assets rather than underperforming assets.  This provides an additional level of risk management.

The question of when to refund the cash reserve is more arbitrary and is tied to environmental risk outlooks. Typically, we suggest refunding the liquid portion of the cash reserve when there are three months of spending remaining. By beginning the process with three months of liquidity in the cash reserve, the portfolio should have time to ride out any temporary market events. While exact timing is difficult, the frequency of refunding should correlate directly with the risk outlook. For example, as environmental risks increase, the frequency of refunding should increase.  As global risks rise, the probability for asset prices to erode increases as well.

 What are the implementation options for the cash reserve?

In liquidity management, the cash reserve is managed across the liquid and safe assets. It’s important to remember though that not all cash is created equal. In addition to money held in checking or savings accounts, marketable fixed income instruments with a maturity of less than one year are generally considered “cash.”  For our purposes, we limit “cash” to investment grade securities with a maturity of less than one year.  In doing this, we ensure both marketability/liquidity and low risk of principal loss.

Despite its role as a risk management tool, liquidity management in and of itself does come its own set of risks. For example, when holding cash, here is a risk of inflation, particularly in an environment where inflation exceeds short-term interest rates. Managing both liquidity risk and principal risk amplifies the potential for inflation risk; however, short duration TIPS could be used to manage the dangers of inflation in certain environments. Low principal risk does not necessarily imply low liquidity risk. For example, a bank CD always protects the principal, but it has high liquidity risk, meaning the funds will not be easily accessible (without a penalty). However, low liquidity risk coupled with low credit risk and low duration risk usually implies low principal risk.  Therefore, we are willing to slightly relax the duration risk constraint in an effort to preserve purchasing power in certain environments (extraordinarily low interest rates with normal or high inflation), provided that credit risk is kept to a minimum.  This exception allows for duration beyond the three months typically utilized by money market funds. By extending the duration up to 24 months in a cash-type vehicle, the opportunity cost of holding cash is somewhat reduced.  However, a rapid rise in interest rates could negatively impact the value of the longer duration cash fund.

Because economic forces are at odds with one another, it is not possible to effectively manage all the risks present to a cash portfolio – inflation, principal, interest rate, credit, and duration – simultaneously. However, since the primary purpose of a cash management policy is to prevent a short-fall in immediate and near-term spending needs, a marginal amount of duration risk provides an opportunity to mitigate most of the risks without much cost.

No matter what the situation, an inherent amount of risk is a given. However, the strategies outlined above and in part one of this series should explain the processes and reasoning behind liquidity management. By immunizing near-term spending requirements in a proper way, portfolios are provided principal protection and investors become empowered to embrace a long-term investment approach.

Through the years, as we have worked with clients who share our passion for principled investment within the community, we have often been asked how to put these principles into work within investment portfolios. Impact investing provides one of the best strategies for doing so.

While many investment historians trace this concept back to social activists’ efforts to consciously channel money and resources into causes they support, impact investing, more specifically, is an investment strategy that seeks to generate both financial returns and positive social and/or environmental results. Sometimes called a blended value approach or socially responsible investing, impact investing allows foundations to invest in alignment with their mission, rather than maximizing their portfolio’s returns without regard for the social or environmental consequences of their investments.

Today, impact investing has become a significant segment of the investment industry. In 2009, The Rockefeller Foundation estimated that roughly $50 billion in assets were invested in such strategies. However, others studies suggest that this number could grow to between $500 billion and $1 trillion within the next decade.

While some categorize impact investing as its own asset class, it actually calls for allocations that draw from multiple asset classes and a growing set of investment opportunities. Ranging from a simple decision to shun investments in industries that contradict the ideology of your organization to more far reaching investments in emerging markets such as micro-finance, investors adopting this strategy have more options than ever. However, when considering impact investing, we caution investors to consider three things.

First, when making the decision to eliminate certain assets from your portfolio, consider the risk and return tradeoffs. While the social impact could be meaningful, ultimately, the ability to adequately diversify your portfolio and hedge against risk could be seriously limited by restricting your investment options. As an investor, it is important to consider how much risk you’re willing to take in pursuit of portfolio returns and social results.

Next, do your due diligence. Impact investors should conduct the same level of research for an impact investment that they would for a more traditional investment.  Through the due diligence process, verify that there will be adequate transparency and clear reporting to quantify the value the investment adds to your portfolio over time.  Otherwise, you run the risk of making an impact, but finding that it offers limited investment returns. Finally, as with any investment, it’s important to regularly review your impact investments to set guardrails and monitor benchmarks and to always keep in mind that successful investing is more about the management of risk rather than the management of return.

For investors seeking to extend the reach of their philanthropic endeavors and pursue profits that remain in alignment with their principles, impact investing offers an excellent option.  As my dad used to say, “Finding ways to effectively leverage one’s philanthropy and make a difference can be just as hard as making the money in the first place.”