Veris Wealth Partners was founded in 2007 when five financial services executives came together to create a registered investment advisor with the mission of using capital markets to drive change. The founders developed an investment culture and philosophy around “an equitable, fair and sustainable world through capital markets,” said Roraj Pradhananga, recently appointed co-CIO of Veris Wealth Partners.
Pradhananga is charged with sourcing, due diligence and monitoring investments across all asset classes, as well as measuring and managing impact on the $2.3 billion RIA. He chairs the firm's Diversity, Equity, Inclusion and Belonging Committee and Investments Working Group.
He hires the firm DEIB due diligence frameworkis used to identify and invest in fund managers that are diverse and inclusive at all levels of the organization, a process publicly available through the Veris website.
Pradhananga recently provided a look inside some of Veris' model portfolios, how the firm incorporates ESG and impact investing, how it tracks and measures ESG, and the firm's manager due diligence process.
This interview has been edited for style, length and clarity.
WealthManagement.com: What's in your model portfolio?
Roraj Pradhananga: Within public stocks, we are trying to build portfolios that have a passive-active mix.
Active managers typically have high active holdings. We aim to be neutral, to standardize, whether it's size, style, vision or sector, as much as possible in model portfolios.
Our allocation to giant stocks is around 40% to 44%. For large cap, we are very close to the benchmark, at 33% to 34%. The mid-cap allocation is around 16% to 17%, and the small-cap around 4% to 5%. There is a very small compartment for the micro-cap. We strive to build portfolios that are more fundamental, rather than having any growth or value bias.
We have a small division for growth. And all of our model portfolios have a thematic strategy, given our views on climate solutions, race and gender equality. We have a small 5% allocation for a thematic strategy in that stock allocation. We have four main themes we look at: climate solutions and the environment, racial and gender equality, building community wealth, and sustainable and regenerative agriculture.
Given our focus on racial and gender equality, when identifying managers and strategies for our platform, we look at what we call our “equality diversity inclusion framework” which helps us identify managers who are not only diverse, but also including ESG in their lens investments, or for shareholder engagement, or proxy voting, or submitting shareholder resolutions.
WM.com: What does a fixed income portfolio look like?
PR: The fixed income portfolio is mostly active. We primarily use SMA in our fixed income portfolio, given our client base and the fit that comes with our thematic approach.
If you look at the yield curve, if you look at where rates are today, we focus a lot on the intermediate duration within the portfolios.
We have a smaller distribution for a short duration, to focus on the spending needs of customers. We are looking at about 6% in cash or similar.
And then, similar to our equity allocation, we also have a thematic play here, in 10% of the fixed income portfolio, focused on community wealth building and access to mortgage capital, etc.
WM.com: Do you share private investments and alternatives? If so, which segments do you like?
PR: We invest in private markets. Where we have found compelling opportunities, given our impact investing approach, are in venture capital, private equity, private debt and real assets. Within real estate, we deal in real estate, sustainable forestry and agricultural land.
We don't do hedge funds and we don't do commodities. With the short-term nature of hedge funds and the alignment with ESG and leverage, we just haven't found a compelling opportunity there. Given the negative impact on communities, the climate around biodiversity, etc., we have not found any opportunities in commodities.
WM.com: Have you made any big allocation changes in the last six months or a year?
PR: As we look at domestic market valuations, we have given our advisors the ability to lower that valuation in US markets and raise it in international developed and emerging markets.
WM.com: ESG and impact investing is a big focus for Veris. What does the firm offer in terms of impact investing?
PR: We have template portfolios, but we also build highly customized portfolios for our clients. The way we continue to do that is by trying to understand what their financial objectives are and what their impact objectives are. And that helps guide our portfolio building process.
Our investment philosophy is based on the belief that investors can have positive social and environmental impacts across all asset classes while generating risk-adjusted returns for that particular asset class. We believe that integrating material ESG factors into portfolio decision-making and security selection can help mitigate risk and also provide opportunity in the portfolio. We are looking for companies and managers who are integrating ESG into their company, talking about how they are integrating ESG into their strategy, long-term strategy and business practices. And investment managers, how are they incorporating ESG factors into decision making?
As we build and construct our asset allocation models and portfolios, we are also incorporating it into our decision making by identifying managers who are best in class when it comes to implementing ESG integration into the process, also shareholder engagement, voting with representatives in terms. of ESG guidelines, and also submitting or sponsoring shareholder resolutions. This is our theory of change in the public markets.
Also, we believe that different teams offer very different and diverse perspectives on risk and opportunity, and that can improve results. So we are looking for different managers on our platform.
WM.com: What do you use for ESG and impact investing data?
PR: There are some really big players that collect data from publicly listed companies about ESG, such as MSCI and Sustainlytics. They have a very strong database and many of the managers we work with use those big data providers.
But many of the managers also have internal data-gathering teams, particularly on the active side of management, that do bottom-up analysis on ESG factors that gather data through conversations with companies or other industry players. It's a hybrid approach there, as far as the public markets are concerned.
Are we perfect in a perfect world, in terms of ESG data? No. But especially when we look at our European counterparts, they are way ahead in terms of ESG data regulations. The SEC recently adopted climate disclosure rules that would standardize data about domain 1 and domain 2 emissions. Of course, it's on hold now, given the legal challenges of the lawsuits. But some large companies are already reporting a lot of ESG data. Some of the small and medium categories are also reporting it. It's just more of a standardization, in terms of who should report it, and how they should report it, and whether they should be audited, for example. And here, I think, we are making progress. We're not where we need to be, but the data is improving.
On the private market side, it is still very voluntary.
WM.com: What is your due diligence process for selecting managers?
PR: Our due diligence process is very rigorous, disciplined and deliberate, especially because of our approach. We are identifying managers and strategies that meet our clients' financial and impact goals. And we're long-term investors, so that guides our pipeline.
In terms of resources, across all asset classes, we're using tools like Morningstar Direct and similar tools out there. But we also get a lot of incoming requests. We have been in the industry since 2007. Our founders have been in the industry since the 90s. So in terms of ESG and impact investing, we've built a reputation.
We are also on the circuit a lot at impact investing events. We meet a lot of managers this way. We look at quantitative and qualitative factors, both from a financial and ESG perspective, to narrow down that baseline.
To find diverse managers, we've evolved what we call our Equality, Diversity, Inclusion Manager Due Diligence Framework. This is available to the public. We don't call it ownership because we think more firms should look at it through that lens.
But there are many other collectives – Commitment Due Diligence 2.0, 2X Global.
WM.com: Do you use direct indexing? If so, why? Do you use an asset manager or technology provider for this?
PR: Yes, unfortunately I can't reveal the name of the asset manager we use. We've been involved with them since the early days of Veris, even on the advisory board when they were a small firm, and now they're a very significant asset manager.
And on the public equity side, what direct indexing offers is the ability to customize client portfolios by excluding certain sectors, sub-industries or stocks. Our customers come with certain values and we offer this opportunity.
But even then, having certain tendencies, whether it's racial and gender equality, or climate, to tilt the portfolio in a certain way, while still minimizing tracking errors. We try to minimize tracking errors as much as possible.
Despite all these exceptions and biases, we try to be as neutral as possible to the standard. Of course, not always possible.
We also provide overlay services in terms of shareholder resolutions and proxy voting, etc., with this asset manager.