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Friends Ivory Exits U.S. SRI Fund Business


The U.S. socially responsible mutual fund market simply isn't generous enough for a new entrant to make a successful play for assets.

Friends Ivory & Simes, a relatively new participant in the socially responsible mutual fund arena, has decided to shutter its only two funds and withdraw from the U.S. market entirely. The company continues to manage wrap account assets in the U.S., but under a less rigorous socially screened mandate, said a company spokesman.

The London-based firm announced in a Feb. 11 filing with the SEC that it would liquidate both of its two-year-old social funds on or about March 28. Set to be eliminated are the $19.5 million Friends Ivory Social Awareness Fund, which invested in large U.S. companies, and the $17.2 million Friends Ivory European Social Awareness Fund. The European fund honed its investment focus to large, socially responsible European companies and was the first socially screened Pan-European fund to debut in the U.S.

"We had seeded the money and the two funds in hopes of them becoming viable. But because of market conditions over the past two years, we haven't seen the growth in assets," said Cassandra Martin, a spokeswoman in Friends Ivory's London office. "It didn't quite work out the way we had hoped."

The firm's two flagship no-load socially screened funds were originally launched in late 1999. (see MFMN 2/28/00). While the liquidations close the only funds the firm offers in the U.S., Friends Ivory has managed assets both globally and in the U.S. for institutions and wealthy clients since the 1800s.

A Poorly Timed Launch

A saturated market combined with the poorly timed launch dates meant that the funds were practically doomed from the start. "The field is pretty well covered already," said Don Cassidy, senior analyst with Lipper. "Unless the company is well-known and spending a lot on promotion, it was a predictably tough market to crack during 2000 [and] 2001."

The funds' ill-fated launch dates coincided with a significant downturn in the equity markets just a few months after they debuted.

In 2001, the Friends Ivory Social Awareness Fund lost 20.6% of its value on the heels of a 14.2% loss in 2000, its first full year of operation. The Friends Ivory European Social Awareness Fund lost 26.1% in 2001 after a 10.8% drop in 2000.

Another factor that made terminating the funds an easy decision was the firm's reorganization of its U.S. management operations. The company relocated its 20-member U.S.-based investment management team back to the U.K. "It was difficult to manage a satellite office and achieve efficiencies," said Vanessa Codling, a spokeswoman at Friends Ivory in London.

Social Funds Multiply

Despite Friends Ivory's failure to penetrate the U.S. SRI marketplace, social funds have found a home with both retail and institutional investors.

According to Morningstar, there is currently $13.3 billion in total assets invested among 75 mutual funds that use social screening. Socially responsible funds define themselves by those companies that they will not invest in, often choosing to avoid companies with ties to alcohol, tobacco, gambling and/or nuclear weapons, among other things. Religious funds, which invest according to the teachings of a particular religious sect, have also found their own following.

Between 1995 and the end of January 2002, assets in all socially screened mutual funds increased 207%, up from $4.3 billion, while the number of socially conscious funds has increased 108%, from 36 in 1995. In 2000, 13 new social funds were launched, including the two Friends Ivory funds.

According to the Social Investment Forum of Washington, D.C., a not-for-profit consortium of socially conscious firms, in 2001 socially responsible investments across all investment vehicles topped the $2 trillion mark for the first time.That means nearly $1 out of every $8 invested in the U.S. is invested according to some social screening, the group claims.

More Choices, More Assets

More than just a marketing ploy to draw assets, social investing is evolving to meet the needs of a diverse and growing market, proponents of social investing claim. "The socially responsible investment market is becoming so much more sophisticated that investors are now looking for more targeted products," said Anjoli Gupta, a spokesman at the social research firm KLD Research & Analytics in Boston. Two weeks ago KLD announced it was launching a new social index through a partnership with The Nasdaq Stock Market. The index, which is the first to offer a social screening of Nasdaq component companies, is currently being considered as the benchmark for a new mutual fund by a number of companies, Gupta said.

In addition, socially conscious investors invested heavily after the Sept. 11 terrorist attacks. Of the total $955 million social funds took in last year, 40% of that flooded into funds from the period of October to December 2001, according to Lipper.