Social Impact ETF Steeped In Golf Supports Military Families

When you win a charity auction, the giving is typically a done deal once that check clears. But for Patrick Galley, the high bidder for a trip to the Patriot Golf Club, homebase of Folds of Honor, a non-profit that raises funds to provide educational scholarships for family members of fallen or disabled service members and first responders through their Patriot Golf Days, it was only the beginning of a journey to create an investment product that would continually give back to a charity close to many golfers hearts.

Galley is the CEO of RiverNorth Capital Management, a boutique asset manager with just under $6 billion in total assets under management. He resides in Barrington, a northwest suburb of Chicago and the Windy City’s chapter of Folds of Honor just so happens to be the largest in the country. Galley had often participated in the chapter’s annual fundraiser pitting members of Barrington Hills Country Club where he belongs against members from nearby Biltmore Country Club. This year’s edition, held a couple weeks back, raised $700,000 for the charity. The idea for the RiverNorth Patriot ETF (NYSE: FLDZ), an actively managed non-profit impact fund launched earlier this year, arose at a previous edition of that annual event after Galley won a trip to the Patriot Club in an auction.

“Eight of us went down there to play golf and I didn’t know what I was getting myself into. I was just thinking we’d have a great time playing golf. Yes, it’s the home of the Folds and its also the Patriot Club so I thought it’s going to be pretty cool,” Galley says.

When they got there, they were told about the club’s main rule aside from the perfunctory ‘have fun out there.’ At 1300 hours every day, everyone stops, takes off their hat and listens to Taps on the loudspeaker. The bugle call is followed by bells that ring out 13 times in honor of the 13 folds required when an American flag is ceremonially folded as it is after being draped on a casket at a military funeral.

“The reality is you wouldn’t have the time or the fortune to play golf if it wasn’t for those who made the ultimate sacrifice and that’s when it really hit me,” Galley explains.

He knew he wanted to do something more substantial than simply writing another check. After going home and brainstorming ideas, he landed on leveraging the experience of the investment management firm he operates to make a difference by creating an ETF to directly benefit the Folds. Larry Robinson, the head of business development at the Folds Of Honor, gave the idea a thumbs up and Galley set about turning the wheels into motion.

While RiverNorth had extensive expertise in creating mutual funds, closed-ends funds, and hedge funds, exchange traded funds weren’t their forte. But with assets flowing into the category, they knew that was the wrapper they wanted and so began taking calls with the various service providers in the ETF world to pitch them on their non-profit concept. While many firms were receptive and talks reached the seventh and eighth inning with several providers, in the end Chicago based TrueMark Investments, who was crowned Newcomer ETF Firm of the Year in 2021 by Fund Intelligence won out and the RiverNorth America Patriot ETF was soon launched.

In keeping with the patriotic theme, the actively managed fund holds companies with an operational concentration within the United States that generate at least 90% of their revenues domestically. The other criterion is they must also have a market cap over $5 billion so the fund holds a large basket of mid-cap, large-cap, and mega-cap equities with heavy U.S. centric exposure. By screening out companies with significant international revenue, the fund is underweight technology with a tilt to value over growth stocks.

The majority of the advisory fees and all profits from managing FLDZ are donated directly to the Folds of Honor so investing in FLDZ provides an alternative approach to charitable giving. As the fund’s assets under management tally rises, so too will the corresponding donations made to Folds of Honor. For example, when the Fund’s AUM hits $50 million, they’d be paying out at least $175,000 per annum plus profits.

“The goal is to get the operating expenses as low as possible to get past that for profit point so then we could start giving even more than that $175,000. By our estimates, when it gets to a billion dollars under management that would be over $5 million dollars a year going to the Folds Of Honor directly,” Galley explains.

While FLDZ is certainly breaking new ground with at least half the revenue and all the profits go back to the Folds of Honor, the concept of a social impact ETF is not entirely new. The Simplify Health Care ETF (PINK) which launched in 2021, donates all its net profits to the Susan G. Komen breast cancer organization and Dallas based Impact Shares also creates ETFs where net profits go directly back to their non-profit partners including the NAACP and the YWCA has been around since 2018.

The key differentiating factor is that even before profitability is attained, FLDZ still will pay out to its benefitting charity.

“We structured it the way we did because small funds and startup funds are not profitable until they get to a critical size. We want to make sure everyone knows that every dollar counts and even when it’s not profitable RiverNorth will make sure that at least 35 basis points of every dollar that comes in will go directly to the Folds so the ETF doesn’t have to be profitable to make an impact to the Folds of Honor,” Galley explains.

Since its founding in 2007, Folds Of Honor, begun by Lieutenant Colonel Dan Rooney, an F-16 fighter pilot and PGA professional wo flew in three tours in Iraq, has awarded over 44,000 scholarships to military dependents, with 9,000 of those worth $40 million awarded for 2022-2023.

While RiverNorth was focused on the cause when they developed FLDZ, they wouldn’t be at all surprised if a bevy of social impact ETFs cribbing their model begin to pop up to benefit a host of worthy charitable organizations. Wall Street’s $6.6 trillion ETF industry is always mulling the next hot theme and there’s no reason one where inflows can make a real world difference can’t be it.