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Great Fiscal, Social Expectations

Barbara Krumsiek, executive of Calvert Group, directs the firm's mutual funds to be both socially responsible and high-performing. (By Melina Mara -- The Washington Post)
By Michael S. Rosenwald
Washington Post Staff Writer
Monday, August 13, 2007

Barbara Krumsiek, chief executive of the Calvert Group, the Bethesda mutual fund company that makes socially responsible investments, sat behind her desk the other morning and held a conference call with the new manager of a fund that had been on a disastrous run.

Krumsiek grew up in New York and has a New York way about her, meaning she is more direct than the average person. One of the things she is most direct about is her firm's investment philosophy: pursuing a socially responsible strategy shouldn't come at the expense of returns.

The problem with this particular small-cap fund was its three-year return: 0.12 percent, about 13 percentage points lower than gains in the Russell 2000 Index of small companies. Calvert fired the portfolio manager in March and hired the man on the other end of the phone. Things were looking better: The fund was up 6.32 percent for the quarter. Krumsiek was beaming.

"This is the bottom line: We have to deliver investment performance," she said.

While it might seem that social investors walk around with halos over their heads, they're out there scrambling for profits just like any other money manager. Krumsiek, 55, recently let a Washington Post reporter tag along through a couple of days at the firm, providing a window on the sometimes competing demands of reconciling social considerations with financial goals.

Krumsiek has led Calvert for 10 years, taking it from a rather sleepy operation managing less than $5 billion in assets to a company with nearly 200 people looking after $15 billion. When she arrived, socially responsible investing -- which judges companies by their social impact, as well as their economic potential -- wasn't in vogue. Now, on the heels of corporate scandals like Enron and WorldCom, and in the face of public awareness about climate change, that attitude is shifting.

Though socially responsible investing accounts for less than 1 percent of the U.S. mutual fund industry, it is growing, and Calvert officials say they are seeing increased interest in the strategy. Overall, Calvert's gross sales, which include funds that aren't socially screened, are $2.4 billion so far this year, up from $2.1 billion a year ago. The company does not release its bottom-line figures.

Major investment companies dwarf Calvert, but of the ones that have entered socially responsible investing their offerings tend to be more limited, mutual fund analysts said.

"In terms of research, nobody can really match Calvert," said Morningstar analyst Annie Sorich. "Most of the examples we see from big fund shops is that they are pretty pitiful."

However, Calvert's funds tend to charge higher fees than a typical mutual fund, Sorich said. "They do lots of good work, but their funds are just expensive," she said. "We wish their fees would go down."

Calvert operates 42 mutual funds, 22 of which are screened to eliminate companies that do not meet social goals. Criteria include governance, ethics, workplace practices and environmental impact.

Krumsiek said she acknowledges the pressure as other firms, with deeper pockets and bigger marketing budgets, look to enter the social investing field. "What we have going for us is our history and authority," she said. "We were doing this before anyone else thought of it."

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