Adding a new wrinkle to socially responsible investing, KeyCorp has teamed up with a minority-owned investment firm to launch the first mutual fund designed to appeal to African-Americans.
The Victory Lakefront Fund will seek to persuade the blue-chip companies in which it invests to make diversity a top corporate priority. That makes it different from other funds that support social issues, as they typically invest only in companies that already demonstrate a commitment to their cause.
"This may be the first fund that is taking an active approach to working with its portfolio companies," said W. Christopher Maxwell, senior managing director at Key Asset Management Inc., a unit of the Cleveland-based bank.
Victory Lakefront is also believed to be the first fund aimed directly at the African-American market, which earns and spends more than $350 billion a year. While major fund companies have long targeted groups such as women, senior citizens, and young investors-none have sought to appeal directly to African-Americans and others for whom diversity strikes an emotional chord.
"This is a different beast," said Richard Ross at Fifty-plus Communications Consulting in Glencoe, Ill. "It's a fascinating offering."
A long-term growth fund, Victory Lakefront invests in strong companies whose stock is undervalued, including American Express Co., Texas Instruments, Reebok International, and General Electric Co. Once it owns shares in these companies, it promotes to their managements the economic benefits of diversity policies.
"We don't screen out anybody," said Nathaniel Carter, the fund's creator. "We look for companies with shareholder upside and after we own them, we try to get them comfortable with diversity.
"Companies not dealing with diversity are putting their shareholders at risk from an economic standpoint," he added.
Mr. Carter is president and chief investment officer of Lakefront Capital Investors Inc., Cleveland, which is the only investment advisory firm in Ohio owned by African-Americans. He said he plans to market Victory Lakefront to 401(k) plans and is currently in negotiations with national and regional brokerage firms, including Merrill Lynch & Co. and Dean Witter Financial Services, to carry the fund.
Brokers that work at these firms, Mr. Carter predicted, will want to sell Victory Lakefront because it will provide them with entree to the African-American market.
"It can really be a foot-in-the-door product for them," he said.
According to Mr. Carter, a recent survey by Roper Starch Worldwide found that 51% of African-Americans would like to have their investments pegged to diversity issues. Only 10% of whites in the survey expressed similar sentiments, Mr. Carter said.
Moreover, African-Americans' buying power has grown rapidly in recent years. The number of African-American households with annual incomes of $50,000 or more grew more than 50% during the 1980s to 1.1 million, according to Target Market News Inc., a Chicago-based research firm. By 2000, 12.4 million households will be headed by African-Americans, Target said.
At KeyCorp, Mr. Maxwell said the fund, officially launched last week, has already garnered wide interest. News of its availability generated five times as many telephone inquiries as other investment products, he said.
The fund is likely not only to attract African-Americans, but anyone who feels strongly about championing diversity in the workplace and in society at large, observers said. But while few questioned the fund's emotional appeal, some said that would take it only so far.
"The issue is, will the performance be there?" said Marcia Selz, president of Marketing Matrix, a Los Angeles consulting firm. "Investors will not just look at the approach, but ask, 'What's in it for me?'" For a fund like Victory Lakefront to gather assets, it must have high visibility in the market. The way to do that is to establish a stellar track record, she said.
"You have to have a wait-and-see approach."