Many happy returns: financial companies see a future with gay investors.

When some investment firms think about money these days, the color they see isn't green. It's lavender. While companies such as Christopher Street Financial and Meyers Pride Value Fund have long focused exclusively on gay men and lesbians, mainstream financial institutions increasingly are catering to the gay market in hopes of tapping into a potentially lucrative group of investors.

"We did our due diligence, looking for the markets of tomorrow," says John Potyraj, vice president of Scudder Kemper Investments. "We see opportunities that exist in the gay and lesbian market."

The effort to capture the gay dollar follows two tracks. Some firms, such as Smith Barney, are plugging portfolios or mutual funds that include firms with gay-positive policies. Other firms, such as American Express and Scudder, present the same services and products to gay investors as they do to their general customers but with a gay-specific twist in their advertising.

In Scudder's case, marketing to the gay community means devising a message that gay consumers will appreciate. Power. Strength. Courage. Diversity, read a direct-mail piece that Scudder sent at the end of last year to names on gay-oriented mailing lists. Powerful words in a challenging world. In addition to offering an array of services, the letter included mention of the firm's gay-friendly personnel policies. It was signed by Mark Casady, president of Scudder Investor Services, which distributes the Scudder funds.

The result, Potyraj says, has been impressive. "We typically don't receive letters saying, `This is great,' but in this case we did." American Express Financial Advisors has been after gay dollars for some time, having commissioned a study on underserved markets in 1993. The firm has tried to ingratiate itself with gay consumers by tailoring financial planning services to them and by building bridges to the gay community at large. Says Julian Acosta, director of marketing: "You have to demonstrate that you care and that you're not just looking at them as a fat wallet."

Acosta says about 600 of the firm's 8,600 financial advisers are actively working in the gay and lesbian market and are well-versed in the particular needs of gay consumers. Gays have "been dealt a pretty bad hand by the tax code," Acosta says, "and there are things they need to know to put them on a level footing." Among the more popular offerings are those pertaining to planning for children's college tuition.

American Express has gone after the gay market through its advertising and support of gay events. While some ads feature gay couples with tag lines such as How do you plan for your future together? others are more generic. Like Scudder, American Express touts its domestic-partnership program.

Other firms have taken a lower-profile approach to luring gay investors. "We have focused our efforts through our financial consultants," says Christine Cooke, vice president of education services at Merrill Lynch. "They're happy that materials are being created to use with their markets and that we're supporting them in their efforts in the field." Merrill Lynch has also attempted to earn gay goodwill through such efforts as sponsoring gay pride events in San Francisco.

Perhaps the most ambitious -- and often most controversial -- attempt to lure gay investors is the socially conscious investment fund. Such funds use a variety of "screens" to eliminate or include companies with particular policies. Companies with nondiscrimination policies for employees or a track record of supporting AIDS causes are given extra consideration for inclusion in gay-friendly funds.

While such portfolios have traditionally been a fairly narrow part of the overall market, large investment companies are now turning their attention to them. In March 1997 Smith Barney began offering a socially responsible fund that includes a screen for nondiscrimination policies. "We see a trend in which more individuals and businesses want to invest in a socially responsible manner," said Tom Stiles, chief investment officer of Smith Barney Mutual Funds, in introducing the Concert Social Awareness Fund.

Last January Merrill Lynch followed Smith Barney's lead with the Principled Values Portfolio, a group of stock picks winnowed from a list of socially responsible firms developed by Kinder, Lyndenberg, Domini, and Co., a consulting firm in Cambridge, Mass. "What they did was look for stocks that had been screened for a broad range of issues, including environment, product safety, and very strong employee-benefits policies," says Roberta Hess, vice president and marketing manager for Merrill Lynch's Defined Assets Fund; Principled Values is one of the portfolios available within the fund. "One of the issues that they looked at is the gay and lesbian screen." It weighs in a company's favor if it has a nondiscrimination policy or domestic-partner benefits.

The Merrill Lynch portfolio includes corporations from a wide range of industries. Among the 25 stocks currently in the portfolio are McDonald's, Johnson & Johnson, Southwest Airlines, Maytag, and Kellogg. "One of the strengths of the approach we've taken is that we've tried to have it broad enough," Hess says. So far, she reports, the response is very favorable, with the portfolio attracting more than $19 million since its introduction.

Such funds present a challenge, however. The problem is determining just what a gay-supportive company is, says Brian Tremain, first vice president of investments and senior portfolio manager at Prudential Securities. Tremain is founder of the Lambda Strategy, a gay-friendly stock portfolio offered by Prudential. Generally speaking, screens stop at nondiscrimination policies. But more extensive screens, while appearing more socially correct, may prove too limiting for investors primarily concerned about return.

To be considered for the Lambda portfolio, companies must do at least one of three things: have a policy of nondiscrimination in regard to sexual orientation, offer domestic-partner benefits, or participate in the National AIDS Fund, corporate America's response to the epidemic. They also must pass screens having to do with other social issues and, of course, meet financial criteria.

"I've been challenged, `Why not have [only] companies with domestic-partnership benefits?'" says Tremain. "But [the companies that offer those benefits are] biotech, high-tech, and entertainment. At times you can do well in those sectors, but my risk ratio is much lower, and I'm not showing volatility. Most people still want performance, but they are also looking to do something good socially."

Shelley Alpern, an analyst at Franklin Research and Development, an investment firm in Boston, says screens are at best a passive form of economic activism. According to Alpern, large investment firms are unlikely to take an active role in communicating gay concerns to corporations or in supporting shareholder proposals. "That's where the biggest changes can be made," she says.

As firms find their gay-targeted efforts meeting with success, the competition for investors is likely to heat up. Merrill Lynch is planning a gay-targeted advertising campaign in the fall, while Scudder is considering its next step. "The whole trend has become exponential in the past five years," Tremain notes. "We do vote with our wallets."

On Wall Street, at least, firms are banking on it.