Josh Levin

Josh Levin of OpenInvest Interviewed by Sonya Dreizler

Josh Levin of OpenInvest was kind enough to chat with me at Morningstar’s Investment Conference earlier this year. Unfortunately, I was busy and distracted but curious about Josh Levin and his investment platform. Could OpenInvest and similar firms disrupt the mutual fund industry?

Andreessen Horowitz, YCombinatorQED, and others back OpenInvest financially. I knew OpenInvest allows customers to customize portfolios, harvest tax losses and still track the performance of major indexes at low cost. Josh Levin is onto something but at the conference I focused on proxy voting. I finally submitted a rulemaking petition to the SEC (Real-time disclosure SEC petition July 9 pdf) on the subject last week.

Most of those attending #MICUS, in my judgement, were not paying enough attention to the importance of proxy voting. In fact, many opened their eyes to ESG or Sustainable Investing only in the last couple of years. Levin promised those using OpenInvest would be able to vote proxies with a few simple swipes but it was not clear to me if they would have enough information to vote intelligently.OpenInvest

Last week Sonya Dreizler posted an interview with Josh Levin. I followed Sonya’s VR example at MICUS 2019, so I decided to tag along again. With her permission, I republish Sonya’s interview of John Levin with some reformatting, changed graphics, additional headings and other minor changes.

An interview with Josh Levin of OpenInvest

“Indexing is absolutely compatible with impact. Index funds are not.”

When I first heard about OpenInvest a few years ago, I was intrigued by their combination of a digital platform for customizing portfolios to investors’ unique ESG and impact investing desires while also letting those investors vote their shares via their smartphones. Since they are based in San Francisco, I went to meet them in person. It’s been a pleasure getting to know Josh Levin, Co-Founder of OpenInvest over the past few years. Just as fun has been watching them open up their platform to RIAs so that advisors could take advantage of the values customization technology. Though we agree on almost all of the big picture items, we don’t always agree on the details. I hope you enjoy this spirited conversation as much as I did.


Sonya Dreizler:  I like to ask everyone; what was your impact investing aha moment?

Josh Levin: To be honest, it’s been more of an evolution, which continues to this day. The closest thing to an “aha” would be around social enterprise more generally.

 Ever since I was a toddler, I’ve felt a strong personal and spiritual connectedness to the environment, particularly forests. I pursued that passion as an adult. In 2003-2004, I worked for Conservation International in Cambodia, managing the “camera trapping” program doing traditional environmental law enforcement: tracking species, and arresting poachers and illegal loggers. The problem was, most of the folks we arrested were poor, local farmers, looking to make raise a little cash. The few times we could catch larger, organized criminals, we couldn’t successfully prosecute them through the corrupt court system. It became obvious to me that we couldn’t rope off the world’s remaining wild places. In order to protect them in the long run, it is essential to foster sustainable economic development for the people who live in and around the world’s biodiversity centers. 

This experience put me into social enterprise, which was a very new concept at the time. I was granted the Catherine B. Reynolds Fellowship for Social Enterprise to attend NYU Stern for my MBA, a program famous for its Wall Street focus. When I graduated in 2009, I started working in sustainable finance.


Sonya: Recently I wrote about index funds, questioning whether they are compatible with Impact Investing. What are your thoughts?

Josh Levin: Indexing is absolutely compatible with impact. Index funds are not. Associating one with the other is like assuming that music and compact discs are synonymous. Funds are simply a mode of distribution. And like compact discs, they are a relic of an antiquated and fast-dissolving technology paradigm.

We skip the index fund provider and offer “dynamic custom indexing.” Our systems directly purchase the underlying shares. We then remove companies that violate the client’s values, overweight companies with a positive impact, and re-weight the neutral companies to return the client to tracking the index.

For example, suppose an advisor wants to expose a client to MSCI World, and also wants to fight climate change. Our systems would remove the worst polluters across each sector, remove the worst fossil fuel companies, and favor green energy and the most CO2 efficient firms. As one output, for example, you could slash 80% of the carbon footprint of the index, in return for under 40 basis points of tracking error. And you can dial that up and down, moving along the efficient frontier between impact and tracking error.

This allows our clients and advisors the ability to customize by mixing and matching the things they care about. It also offers portfolio dynamism as new information emerges, holdings transparency, personalized impact reporting, and shareholder engagement.

In the 21st century, funds are not the impact solution. They’re the bottleneck. The ESG industry will thrive, but it will monetize through other means.

Proxy Voting 

Sonya: Tell me more about how you approach shareholder voting without the proxy voting mechanisms that funds have.

Josh Levin: Clients and advisors get alerts when there’s a shareholder resolution relevant to their personal values. They receive a summary and can swipe right through their queue, directly engaging in board-level decision making. Any votes they don’t act on default to ESG/SRI guidance.

We get unprecedented levels of engagement in our proxy voting feature. We’ve disrupted the paper packet. I see it as direct democracy.

Driving Change

Sonya: What do you say to critics who think that buying/ selling equities is not impactful, or that divesting at a personal level doesn’t drive change?

Josh Levin: Unless you live in a swing state your vote in major shareholder resolutions is more impactful than your federal ballot. Do these critics not believe in voting? Recycling? It’s the categorical imperative. The fact that there are billions of people on the planet doesn’t mean you sit on your hands.

Also, look at how change happens these days. On, a petition with 10,000 signatures can persuade a corporation to change a global policy for which it’s stonewalled activists for decades. Companies are terrified of virality and the brand hit. Imagine the higher levels of intentionality associated with shareholder action, or moreso actually divesting and moving your money! If you’re fortunate enough to have investable assets, your investment choices in public markets are some of your greatest tools to shape the world.

Sonya: Some folks in the impact and responsible investing industry argue that many facets of capitalism have brought environmental and social destruction, and those same issues are reflected in a traditional stock market index. They ask why we should be benchmarking to an index if that index is reflective of a broken system. Your thoughts?

Josh Levin: We tried the alternative to capitalism. It’s called Bolshevism. Didn’t work out that well.

Then there’s the utopian approach. You can invest all your money in small co-ops and other social experiments. This is great both for the borrowers, the intermediaries, and the investor’s cocktail party stories. But it’s simply not scalable. Meanwhile, history is marching on and writing itself without you.

Sonya: Hmm, not sure I agree there – small corporations not listed in the indexes, loans to small businesses can both be impactful and relatively scalable. Go on though.

Josh Levin: Hold that thought. But when it comes to large cap, no one can say that large corporations aren’t having an impact, whether you like it or not. They employ hundreds of thousands of people, they cut down forests, they plant forests, they reshape our lives with technology, etc., and they are only getting bigger. More technology supports larger systems. This is just the reality from the 100-thousand foot point-of-view.

But it also gives us bigger opportunities for impact. Changing the bathroom policy in a S&P100 company will affect far more people than all the impact-investor privately backed social enterprises in history…combined. In order to stay competitive, these companies raise money from all of us. They socialize themselves. We all have votes, we all have a say over the most powerful entities in human history. There is a socialism embedded in late-modern capitalism. There is a global democracy that already exists, and it is not in politics, but in global capital markets.

With current technologies, new media and dynamic custom indexing, there’s no reason that all the shareholders in Apple, for example, can’t have a conversation about what their company should be doing.

Gold Standard Allocations

Sonya: OK, but OpenInvest bucks convention in many ways yet sticks to this old school idea that an artificially created index is the gold standard for portfolio allocations and performance. Why?

Josh Levin: Great – this is the “hold that thought” I mentioned before.

It sounds like we might be talking about which index you choose – e.g. small cap vs. large cap, etc. etc. We can also overlay customization on someone else’s alpha as the benchmark. With technology, the best ESG thinking can be overlaid on the best financial thinking. Let the ESG analysts focus on what they do best, and let the finance experts – human or automated – do what they do best.

If we’re truly challenging the current indexing approach itself, then yes, I see basing portfolios off of indexes as more of a stepping-stone. Of course, it’s arbitrary to say it should be the S&P500 and not the S&P501, for example. In the future, I see the possibility of advisors moving more towards rules-based construction. For example, an advisor will interact with her workstation, instructing that she wants, for example: 25% exposure in US small cap, supporting gender diversity, tax optimized, with a momentum tilt, etc. etc. etc.

There is no reason that folks can’t essentially “build their own indices” as a pure mathematical formulation.

Sonya: How do you think impact investing performance (and impact) should be measured?

Josh Levin: We’re all about mainstreaming. So we believe that impact reporting should be conveyed in accurate, intuitive, and concrete terms. In the example I gave earlier of the MSCI World minus 80% of carbon footprint, for every million dollars invested in that portfolio, the client avoids financing as much carbon as driving 249,384 miles, planting 2,666 trees, or burning 11,702 gallons of gasoline each year. That kind of personalized data is what people want to hear. People want to understand how impact investing compares to other actions in their lives. And when they see real numbers, it blows everything else away.

Sonya: Thank you so much for taking the time to share your thoughts with me. It’s been a pleasure!


Sonya Dreizler

Thanks to Josh Levin and Sonya Dreizler. Learn Sonya’s Story. See Sonya Speak. Subscribe to Sonya’s Connected Investing. Follow Sonya Dreizler on Twitter.

I followed up with OpenInvest staff to confirm they do vote client proxies, unless overridden by the client. Find an abridged version of their proxy voting policy in at Form ADV II under item 17. The full policy is available to anyone who would makes a written request. I reviewed it. While generally positive, it is certainly not comprehensive. A lot is open to human judgement of what is in the client’s “best interest.” OpenInvest could help their clients by linking to funds that announce their votes in advance of annual meetings, often providing their rationale as well. See our Shareowner Action Handbook, under Vote for a list of such funds. Knowing how others have voted has certainly helped me to decide how to vote.

OpenInvest does not file N-PX forms. Since every OpenInvest client has a unique portfolio and can vote their shares separately, they don’t make those votes available for public viewing. That makes it difficult to compare with how other funds vote. Any client can request and obtain their own voting record for their account.

OpenInvest does represent a significant advancement over standard mutual funds, especially in taxable accounts, since you can harvest tax losses and you can customize holdings (like choosing to be more carbon neutral) while still tracking the performance of a broader index. However, OpenInvest will have difficulty displacing huge multi-trillion dollar fund famalies like BlackRock, Vanguard and State Street contracted for most employer retirement plans.


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