Q&A: BARBARA KRUMSIEK: "HOW DO YOU GET FROM SEVERAL HUNDRED THOUSAND TO 40 MILLION?"

Talk about a challenge. When Barbara Krumsiek, one of few women to lead a mutual fund company, joined the Calvert Group last April, she knew the pioneer in socially responsible investing — that’s SRI to insiders — needed an overhaul. She wasted no time replacing poor-performing outside managers and eliminating weaker funds. Yet the fund firm, owned by the Acacia Group, an insurer in Washington, still emerged from 1997’s hot stock market with virtually no gain in assets.

Mindful that performance doesn’t turn around overnight, she’s now working on spreading the gospel on social investing among financial advisers and 401(k) sponsors. The niche certainly has potential. Spurred in large part by anti-tobacco sentiment, assets in socially screened mutual funds multiplied eightfold over the past two years to $96 billion. At the same time, the number of such funds increased to 144 from 55, according to the Social Investment Forum in Washington.

The former managing director of Alliance Capital Management in New York and Phi Beta Kappa graduate of Rutgers holds a master’s degree in mathematics from New York University. Yet old-fashioned distribution is her bag. “I enjoy getting out and meeting with brokers and planners,” she says. It’s a good thing. Her goal is to double sales to over $1 billion this year.

Q What changes have you made so far?

A Since I’ve come on we terminated one manager and hired one. We’re looking to improve only on a quarter-by-quarter basis. We’re not taking the kind of risks you have to take to make dramatic improvements in short periods of time.

We put some good results on the board last year. Our international fund has exceeded its benchmarks year-to-date and is doing quite well over three years as well; our balanced fund (Managed Growth Portfolio) has also had a strong one- and three-year record.

Q What about other changes?

A Strategic Growth Fund was merged into the New Vision Fund at the end of 1997. Awad & Associates is now managing the fund. Strategic Growth h
ad a very broad mandate that included active hedging and market timing techniques, and that really doesn’t fit well with the way investors want to invest for the long term. And the performance frankly has not been good. We’re also looking hard at adding a number of new funds, including an index fund. We are working on a socially screened Russell 1000 fund.

Q How do you explain 1997’s flat asset growth?

A We have a significant portion ($2.8 billion) in money funds. They don’t multiply by 20% a year. This was a rebuilding year for Calvert. Where we ended was in line with expectations. Annuity assets were up from $194 million to $267 million. Our goal is to get better balance through increasing equity assets while maintaining a strong business in municipal bond and money market funds.

Q How do you plan to grow your asset base?

A We’re committed to the intermediary. Load, no-load really doesn’t have much distinction any more. The big distinction now is direct vs. through an intermediary, and Calvert funds are not offered direct.The second thing we need to address is to really speak directly to the plan sponsor of 401(k) plans and have a very strong statement to help that sponsor respond to the question of fiduciary responsibility — that adding a socially screened fund to a 401(k) plan does not cause any ERISA issues.

It’s not going to happen overnight. There’s a fairly massive awareness campaign. We are contributing to that through our advertising, which really for the first time makes people aware that through ownership of tobacco stocks they are in essence supporting the tobacco industry. The second vehicle we’ve been using is our Web site.

Q What about the broker channel?

A Every broker and planner has either a client or a prospect that wants this kind of fund — the “occasional” social broker. We are committing more sales resources to reach out to brokerages. And we’re talking to one major financial planning firm with a national sales force about doing a road show targeted at the African
-American investor.

Q How much growth can Calvert expect in this arena?

A There’s a large group, perhaps 40 million, that may be classified as “cultural creatives.” It’s a growing segment that crosses all ages and incomes, and 60% are women. They feel that values-based investing is something that makes sense to them. It’s fair to ask, well, you have several hundred thousand shareholders, how do you get from several hundred thousand to 40 million? I don’t know if we’ll get to 40 million, but I do believe that the market share of SRI funds will grow substantially. If 60% of 401(k) participants would prefer to have tobacco-free options, and we currently have something under 1% of assets invested in SRI funds. I would think 10% is reasonable.