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Addressing Racial Injustice Through Investing

The murder of George Floyd has brought a wave of grief and anger to MFA. Grief for Mr. Floyd's lost life, family, and community and anger at the fact that Mr. Floyd is yet another in a centuries-long sequence of black deaths. Each of us has processed and dealt with this in our way, from engaging in dialogue to donating to demonstrating and activism. We have been encouraged to see the many national demonstrations and participate in many local ones.

Racial injustice is a systematic issue that pervades many parts of our society and economy. Several clients have asked what considerations or actions (if any) can be made from an investment perspective. Below are few thoughts:

Public equity investors may choose to align equity allocations with their values by divesting from companies that have poor track records related to diversity and racial issues. Additionally, specific companies and/or industries can also be blacklisted from portfolios upon client request. Alternatively, some public equity investors may prefer engagement by voting proxies (or investing with managers who will vote proxies) in way that looks beyond pure financial gain. We believe both divestment and engagement can make sense depending on investor preferences and objectives.

Alignment is also a key strategy within public fixed-income, as investors can allocate towards mortgage-backed securities targeting low-income borrowers and/or specific zip codes (which may disproportionately include borrowers of color due to discriminatory lending practices that pre-date the Community Reinvestment Act). Another option is to avoid or target purchases of specific municipal bonds, based on resident demographics and municipal policies.

Investors who are looking to move beyond alignment and engagement to impact may consider private investments, where investment dollars may flow directly to the balance sheets of minority borrowers, minority-owned businesses, minority fund managers, or those focused on addressing such issues. These investments often require investors to be accredited investors, qualified clients, or qualified purchasers, but there is a large universe of such opportunities. 

Although we encourage interested investors to reach out to their advisor to begin the investment conversation, we should also note that the most impactful things that many investors can do is to get involved and/or donate towards organizations addressing racial injustice.

#BlackLivesMatter