If not for the challenges of gaining scale as a socially responsible investing startup, financial advisor Marci Bair might have another connection to Martina Navratilova.
Bair’s high school tennis teammates used the nickname of “Martina” for her to the point that they still call her that 37 years later, according to the founder of San Diego-based Bair Financial Planning. Like the legendary athlete with 59 Grand Slam titles to her name, Bair was a “very dominant, aggressive, slam it down at the net type of player,” she recalled. Also like the trailblazer Navratilova, Bair was out as a lesbian at a time of little acceptance.
When Bair noticed that Navratilova, her idol,
She and her business partner Victor Orozco describe the situation as a “chicken-or-egg” problem: Newly launched funds must amass a certain level of assets to be accessible through large independent brokerages and other wealth managers, but they can’t gather the assets without getting access.
The disconnect between advisors and clients placing trillions of dollars globally into sustainable investments and startups that don’t have the assets to pass wealth managers’ due diligence threatens to undercut the movement’s momentum. Concerns about greenwashing, the criticism that some funds are using ESG criteria that isn’t particularly stringent or impactful, are growing alongside the assets under management. As giant incumbents tap into socially responsible investing (SRI) and impact investing with ease, the startups arguing that their products are better tailored often struggle to grow.
As an example, Orozco points out that there have been predecessors to LGBTQ Loyalty’s product that never gained enough scale to stay open, despite being similarly aimed at civil rights and workforce policies.
Despite the startups’ notable debuts, they’re “so niche that it's hard to scale,” he said. “It’s frustrating because there are things we want that we don't have access to currently.”
The funds that are available are growing at an impressive clip. Global sustainable investment funds’ assets under management jumped 15% to $35.3 trillion between 2018 and 2020,
Better reporting and transparency could help the advisors and clients who are driving those figures find the SRI funds most specific to their goals, according to YourStake co-founder Gabe Rissman. A fintech assisting advisors and managers with fund and portfolio construction on ESG criteria, YourStake has launched more than 20 “
“It is hard to differentiate from the noise because of greenwashing,” Rissman said. “The way that these smaller funds or newer funds would gain access is by having a way to prove their differentiation.”
They still have to navigate the “catch-22” of having enough assets to make it in front of most advisors, said Adasina CEO Rachel Robasciotti. The Adasina Social Justice All Cap Global ETF has topped $70 million in AUM in less than one year after its launch, aided by the fact that Robasciotti and co-founder Maya Philipson had already been running a social justice-focused strategy in their wealth management practice for a few years, Robasciotti said last month. Funds often need to amass as much as $50 million to $100 million to get into the fund marketplaces run by major custodians and wealth managers.
“Unfortunately, some of them have set those thresholds really high,” Robasciotti said. “Most ETFs now, if you have $25 million, you're probably covering costs. ....It's really someone's subjective decision.”
Fortunately for the startups, the price of launching is about a quarter of what it was five years ago, according to Sloane Ortel, the
“The No. 1 asset you need in investment management is staying power,” Ortel said. “It could be a long slog. This isn't the kind of firm that buys a full-page ad in the Wall Street Journal.”
For its part, LGBTQ Loyalty has a plan to get over the hurdles of being a startup. In
“We’re going grassroots, which we wanted to do anyways, because who we really want to impact with this is our community and our allies,” Blair said.
Navratilova first became interested in impact investing in the early ‘90s when she asked an advisor to create a portfolio without any holdings in tobacco, alcohol or polluting companies, she said on the podcast. Instead, her proposed investments came back three months later with a few of the very equities she wanted to avoid. LGBTQ Loyalty is trying to attract any clients who “care about where their money goes,” she said.
“You don’t have to keep track because we will keep these companies accountable,” Navratilova said. “That’s the whole point. We won’t let them get away with saying one thing and doing another. Your words and actions need to match in life and in business,”
Stories like Navratilova’s experience with the advisor 30 years ago continue to happen to this day, according to Bair. Her practice picks up a lot of clients who are told by other firms that they can’t set up a portfolio based on ESG criteria or to wait as long as eight months, Bair said. She and Orozco have made senior executives with their brokerage, LPL Financial, aware of the difficulty accessing startup SRI funds. They acknowledge the importance of due diligence policies and avoiding becoming significant shareholders right after a product’s launch.
“The majority of our clients would be interested in a product like that that supports the LGBTQ+ community,” Bair said. “Anything we have that can offer support in general of diversity, equity and inclusion, they're all in.”
For now, Orozco constructs portfolios using the available families for their practice and others within their hybrid RIA and office of supervisory jurisdiction, The Wealth Consulting Group. Startups like LGBTQ Loyalty should understand the frustration of advisors, even as they find a way to build up AUM elsewhere, he said.
“They need to focus on the endowments, the pensions and the nonprofits,” Orozco said. “They need to survive until we can show up to the party.”
