Socially responsible investing is gaining ground among private client investors globally and European wealth mangers are developing products...

Socially responsible investing is gaining ground among private client investors globally and European wealth mangers are developing products to cater for rising demand. But Credit Suisse appears to be ahead of the curve in this area, particularly with the release of two “ethical-based” funds within the last year. In a first of a new regular feature called Funds Focus, WealthBriefing takes a look at these initiatives.

Earlier this month, Credit Suisse launched its so-called Charity Bonus Note and Charity Yield Note. Both investments not only provides an interesting investment vehicle for investors, but also help in providing jobs for the young unemployed in Switzerland.

One per cent (for the Bonus Note) or 1.5 per cent (for the Charity Yield Note) of the nominal value of each investment is donated to selected projects each year through the Symphasis Foundation, which was established in 2002 by Credit Suisse.

“Symphasis is collaborating with professional partners,” said Joseph Jung, managing director of Symphasis Foundation, in a recent interview for an in-house Credit Suisse publication.

He added: “The Board of Trustees of the Symphasis Foundation has made an assessment of professional project partners throughout Switzerland. We work with partners whose projects we find convincing and whose organizations can demonstrate an appropriate track record of performance.”

All the mechanics of a sophisticated fund product are features of the two Charity Notes. The Bonus Note is structured to give 100 per cent capital protection and provide an alternative to investing in bonds. It is based on a global portfolio of 20 underlying equities.

The Charity Yield Note offers conditional capital protection but investors receive regular, fixed interest payments.

The minimum investment for both is SFr1,000 ($757) and the term is six years. The notes can be traded on the secondary market.

Micro-Finance
Early this year, Credit Suisse, together with a number of other Swiss financial firms – Raiffeisenbanken and Baumann & Cie – launched a new fund designed to invest in the growing area of micro-finance for the poor in the developing world.

The three banks along with Alternative Bank, a specialist micro-finance group based in Switzerland, founded responsAbility Social Investment Services, which launched the responsAbility Global Microfinance Fund.

The ResponsAbility Global Microfinance Fund provide loans to microfinance institutions whilst offering investors a reasonable return.

The social benefit of this fund is that it will help to fuel entrepreneurial growth in developing nations. And from the bank’s point of view this will be doubly beneficial as today’s struggling entrepreneur is tomorrow’s client, especially in the dynamic economies of Asia.

Credit Suisse foresee that microfinance could turn into a new and recognised asset class in its own right.

“Within socially responsible investment portfolios, microfinance investment products could turn into a standard asset in the future. Large financial players should soon increase the share of commercial investors by providing microfinance investment vehicles and the requisite funding for micro-credit respectively,” said Credit Suisse in a statement on the launch of the fund.

Microfinance is a high-growth industry, fuelled not only by the size of its target market but also by its sustainable returns, says Credit Suisse.

And the potential market for such products is indeed huge. Worldwide only 10 per cent of the estimated 500 million very small enterprises in developing countries have access to any lending facilities at all.

Although 5,000 microfinance firms actively lend worldwide, only up to 500 of those are run on commercial lines, according to Credit Suisse.

As for the quality of the debt, Credit Suisse believes there are few problems.

“The payment behaviour of micro-entrepreneurs is clearly superior to the one of US credit card holders.”