Investment Intelligence for the Fund Professional INVESTMENT EUROPE June 2019 ISSUE 102 Annual subscription 450 www.investmenteurope.net Putting ESG into model portfolios

Diversifikator’s Dirk Söhnholz explains all Beyond the spread ESG factors in credit analysis Round and round Decalia AM’s take on the circular economy Qualifying ESG CFA UK’s Certificate in ESG Investing Green + alternatives ACP SGR’s Italian push Continent bound LGIM’s development plans Liquid alternatives GMO in southern Europe STARTING Travel diary Madrid, Oslo, WITH AN ‘E’ Valencia, Zurich Danilo Pone, CIO at ENPAB, on ESG in ETFs EVENT REPORTS • ALFI LONDON CONFERENCE

Upcoming events: Rome, Zurich, Helsinki, Reykjavik, Milan, Lisbon, Frankfurt, Madrid, Copenhagen To register your interest visit www.investmenteurope.net/events ZURICH

The Pan-European ESG Summit is designed to speak to the practical issues and challenges facing fund buyers as they look to build ESG EVENT INFORMATION portfolios that deliver positive impact and enhanced financial DATE: performance. As well as providing premium content across two days, 13th - 14th June 2019 this Pan-European summit will facilitate high-level engagement with asset owners, allocators and leading asset managers with committed LOCATION: The Dolder Grand, Zurich track records in sustainable and responsible investing.

Places at the event are complimentary for key fund selectors and limited to only 40 delegates - apply for your place today at: events.investmenteurope.net/esgsummit

Sponsored by: Sustainability partner: Brought to you by: 1 June 2019 CONTENTS

COVER STORY REGULARS 10 Starting with an ‘E’ 2 Leader Engaging engagement COUNTRY FOCUS 20 Research Consumption and construction 16 Italy Alternative Capital boost German growth Partners’ key pillars 26 Business development 18 Germany Bond investors LGIM heads for the Continent consider ESG factors in the 35 SharingAlpha analysis of credit risk Discussing digital fund selection 10 Danilo Pone 37 Observations ZURICH 21 UK CFA UK unveils ESG Diversity and the benefits investing certificate of avoiding groupthink 24 Spain/Italy GMO tailors liquid 38 Data Switzerland and the World 50 alts for southern Europe 40 Review Joshua Harmon’s US FUNDS college drama Admissions 19 ESG Decalia’s “Circular COMMUNITY Economy” funds 4 Fund selectors in the news Thomas Metzger, Bankhaus Bauer; 19 Clément Maclou EVENT REPORTS Cord Hinrichs, Corestone Investment Managers; Danilo Pone, ENPAB; 28 London Alfi Conference Sandrine Vincelot-Guiet, VEGA Investment Managers; Fernando The Pan-European ESG Summit is designed to speak to the practical Aguado, Fonditel; Patrizia Bussoli, issues and challenges facing fund buyers as they look to build ESG Pramerica Sgr; Raul Póvoa; Banco Invest EVENT INFORMATION 6 People & Funds portfolios that deliver positive impact and enhanced financial DATE: Bright ideas coming to market performance. As well as providing premium content across two days, 13th - 14th June 2019 14 Allocator profiles this Pan-European summit will facilitate high-level engagement with Marnix Philips discusses Beobank’s bid asset owners, allocators and leading asset managers with committed LOCATION: to topple Belgium’s incumbent banks The Dolder Grand, Zurich 22 Diversifikator’s Dirk Söhnholz on track records in sustainable and responsible investing. 20 Azad Zangana bringing ESG to model portfolios 30 Travel diary Places at the event are complimentary for key fund selectors 32 Upcoming events and limited to only 40 delegates - apply for your place today at: 36 Editorial board IPO valuations, sustainability objectives events.investmenteurope.net/esgsummit and the US/China trade war

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www.investmenteurope.net InvestmentEurope June 2019 2 LEADER

INVESTMENT EUROPE An Open Door Media publication

Engaging engagement

In a recent report, Morningstar estimated the assets Regarding the latter area, it is clear from the Dutch of European domiciled ETFs could hit €2trn by 2024. auction example above, and others, that the green Meanwhile, the recent auction of Dutch sovereign bond market is growing fast. green bonds – the first AAA rated such securities – Yet, green bonds remain a very small part of the was 3.5x oversubscribed, with bid volume reaching overall debt market. over €21bn in 90 minutes. The Securities Industry and Financial Markets Clearly, these are exciting times for those interested Association (Sifma) 2018 Fact Book points to in either of these two segments. primary market issuance of corporate debt, asset

Jonathan Boyd, However, these developments are occurring backed securities and non agency mortgage backed editorial director of at the same time that demand is also growing to securities totalling $2.7trn in 2017 – easily dwarfing InvestmentEurope invest in line with ESG considerations, spurred on equity issuance through IPOs. by commitments to UN Principles for Responsible But bond holders cannot vote at general meetings Investment, UN Sustainable Development Goals and of shareholders. So, how easy is it for them to apply the Paris Agreement on climate change. pressure on wayward company management? And this in turn raises fundamental questions, How easy is it for those buying into fixed income such as to what extent can the ETF segment, which securities in the secondary market know how other in Europe overwhelmingly is still a passive play, big holders of bonds are influencing individual engage in areas such as governance to the same companies? extent as actively managed funds, or to what extent With ESG not going away anytime soon (if ever), is the traditional fixed income market ready to these are the sorts of questions investors and respond to ESG factors. selectors are likely to increasingly ask. ■

Editorial Events Fund selector relationship Editorial director: Jonathan Boyd Head of events: Alex Whiteley executive, Iberia: UPCOMING EVENTS Tel +44 (0) 20 3727 9922 Tel +44 (0) 20 3727 9923 Angela Oroz InvestmentEurope launches its first Summit for Iberia correspondent: Event manager: Lucy Wilson Tel +44 (0) 20 3727 9920 fund selectors in Iberia at the end of May (30-31). Eugenia Jiménez Tel. +44 (0) 20 37 27 9948 Fund selector relationship manager, Tel +44 (0) 20 3727 9930 DACH: A number of visits from members of the team have DACH correspondent: Marketing Alexandra Laue Ridhima Sharma Head of marketing: Vanessa Jagessar Tel +44 (0) 20 7484 9768 taken place beforehand to meet those interested in Tel +44 (0) 20 3892 7911 Tel +44 (0) 20 3727 9924 Fund selector relationship executive, attending as delegates (see our Travel Diary section in French-speaking markets Digital marketing executive: France, Romandie & Belux: this and last month’s issue). correspondent: Catalina Butnariu Alexandre Duransseau Elisabeth Reyes Tel +44 (0) 20 3727 9927 Tel +44 (0) 20 7484 9784 Thereafter, in June the events programme moves Tel +44 (0) 20 7484 9720 Fund selector relations HR manager to Italy for the Italian Summit Rome Summit on Production Head of fund selector relations: Maria Margariti 6-7 June, with an eye particularly to fund selectors Phil Turton Vanessa Orlarey Tel +44 (0) 20 3727 9925 Tel +44 (0) 74 7393 4144 working in the institutional market. Commercial Head of fund selector relations, Nordics: Chairman Also in June, the Pan-European ESG Summit Managing director: Louise Hanna Patrik Engström Nicholas Rapley Tel +44 (0) 20 3727 9929 Tel +44 (0) 20 3727 9940 Tel +44 (0) 20 3727 9939 takes place in Zurich on 13-14 of that month. This Head of sales: Eliot Morton Fund selector relationship manager, Email: [email protected] event addresses key aspects of ESG in respect of Tel +44 (0) 20 3727 9945 Italy & Ticino: measurement, implementation and engagement on EMEA business development Luisa de Vita director: Mathieu Gaussen Tel +44 (0) 3727 9932 both the sell and buy sides. Tel +44 (0) 20 3727 9928 Looking forward to the second half of the year, our No part of this publication may be reproduced, first event in September will take place in Helsinki, stored in a retrieval system or transmitted in any form or by any means without the prior written offering a Roundtable to locally based fund selectors. permission of the publisher. Photocopying or PPA PUBLISHING INNOVATOR OF THE YEAR 2015 other reproduction is prohibited without the Details of these and other events can be found at: publisher’s permission. Action will be taken www.investmenteurope.net/events. where this occurs. Distributed by Open Door Media Publishing Ltd.

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C40815.003_JH_Absolute Return_InvestmentEurope_280x220_Apr19_v1.indd 1 26/03/2019 12:18 4 FUND SELECTOR COMMUNITY

Fund selectors in the news Selectors offer views on regulatory headwinds for ETFs, HNWI investments and other issues

www.bankhausbauer.de www.corestone.ch www.esferacapital.es Name: Thomas Metzger Name: Cord Hinrichs Name: Luis Hernández Guijarro Company: Bankhaus Bauer Company: Corestone Investment Managers Company: Esfera Capital Role: Head of Asset Management AG Gestión SGIIC Base: Stuttgart Role: Head Asset Allocation Role: ESG fund selector and fund Will certain existing ETFs face Base: Switzerland of funds manager headwinds in future depending What, in your view, will be the Base: Madrid on regulatory developments? main difference in five years’ Will certain existing ETFs face I do not expect that we will promptly time compared to now, in how headwinds in the future depending adopt regulatory measures with regard to the spectrum of HNWIs’ fund on shifts in investor demand the mandatory inclusion of sustainable cri- investments will look? related to, ie decarbonisation/ teria in the design of investment products The institutional manager selection and climate change responses? such as ETFs. This would interfere too much asset management process will become Of course, due to ‘greenwashing’, investors with the necessary freedoms of product pro- more and more the basis for HNWI or multi- will have more confidence in, for example, viders and investors. family offerings. Green Bonds’ ETFs, since all bonds in their Rather, in my view, the demand for sus- In times where yields are low, we will portfolios are according to an international tainable asset management solutions will see more transparency, lower costs and standard such as the Climate Bonds Initia- increase more and more and create a natural increased scrutiny. For existing asset man- tive (CBI). pressure on the industry to develop new agers, it will become increasingly chal- That is certainly the case for Lyxor Green strategies or include corresponding criteria lenging to make a case for a place in a client Bonds, which also have a green bond certifi- in already existing products. portfolio. Performance alone will not be cate from a third party, a prestigious com- enough. pany and expert in this field like Vigeo-Eiris. At the same time, there are metrics for ETFs such as theCarbon Risk Score from Morningstar to help investors to evaluate funds´ carbon risk exposure and how to contribute to the decarbonisation of their investment portfolios.

InvestmentEurope June 2019 www.investmenteurope.net 5 FUND SELECTOR COMMUNITY

www.vega-im.com www.fonditel.es www.pramericasgr.it www.bancoinvest.pt

Name: Sandrine Vincelot-Guiet Name: Fernando Aguado Name: Patrizia Bussoli Name: Raul Póvoa Company: VEGA Investment Company: Fonditel Company: Pramerica Sgr Company: Banco Invest Managers Role: Investments director Role: Asset allocation Role: Fund selector Role: Multimanagement Base: Madrid Base: Milan Base: Lisbon director, Fund Selection director, Will certain existing Do you feel the generally Does the focus on yield ESG manager Base: Paris ETFs face headwinds accepted definition of – financial repression – in future depending yield is still valid? by macro policymakers Do you see an opening on regulatory The introduction of non-con- (central banks) need to for new types of ETF developments? ventional monetary policies be changed? If so, why? products to meet new We consider that this could be during the the global financial The central banks engaged in investor demand for, an upcoming scenario for ETFs crisis has enriched the tools of unorthodox monetary measures say, carbon neutral in some market niches where monetary policy and the way it in order to bring inflation back funds, or funds that the underlying asset liquidity affects fixed income markets. to target, stabilising financial promote solutions to is lower. The great volume on The role of the balance sheet markets and fostering economic the UN Sustainable ETFs that provides liquidity on as a tool of monetary policy growth. Although the success of a regular basis, could induce means that size and composition these measures was achieved, Development Goals? investors to a false impression of central banks balance sheets they also brought a low interest Yes. For example the following of liquidity and depth, that does will affect yield level (through rates environment that helped companies have already cre- not match with the real charac- the size effect) and the shape governments to fund their debt, ated low-carbon ETFs: Amundi teristics of the underlying asset. of the yield curve (through the which means, they are able to (Equity Global), BNP Paribas High yield, corporates, composition effect). channel funds to themselves. (Europe) and Ossiam (US). emerging market bonds or On top of that, the introduc- This type of policymaking Developments should be taken volatility could be clear strategy tion of forward guidance has a comes at a cost. So far, central in this direction. examples of this scenario. The role in giving more evidence on bankers have argued that the The second type of funds is January 2018 flash crash on the way central banks form their benefits of quantitative easing more complex to put in place in short volatility strategies could decisions, therefore reducing and other unorthodox measures order to deliver a truly efficient be a reminder. information asymmetries outweight the costs. solution. Indeed, translating Some of these products could between central banks and mar- Nevertheless, exiting ultra- the UN’s 17 SDGs into manage- be systemic ones and we know kets. easy monetary policy will ment objectives, requires precise what regulators think about sys- become harder with time and transposition mapping for use in temic risks, and how they used will bring unintended conse- asset management. to act (regulation). quences like potential asset The challenges here have yet bubbles, increasing economic to be properly identified and inequality, potential for higher shared. inflation and reputational damage for central banks.

www.investmenteurope.net InvestmentEurope June 2019 6 PEOPLE & FUNDS

People moves around the industry

BILL HARTNETT CINDY ROSE as senior responsible investment New investment director adviser. Within the Responsible bolsters ASI ’s ESG capabilities Majedie adds ESG head Investment team she will focus Aberdeen Standard Investments Majedie Asset Management primarily on corporate gover- (ASI) has strengthened its ESG (Majedie AM) has appointed nance. capabilities with the appoint- Cindy Rose to a newly created Vitorino Fuleky has worked ment of Bill Hartnett as an ESG role as head of Responsible for the Global Reporting investment director. Capitalism, effective 27 August Initiative since 2010, an Hartnett will report to 2019. international, independent Euan Stirling, global head Rose joins from Aberdeen organisation that draws of Stewardship and ESG Standard Investments (ASI), up sustainability reporting Investment and will be based where she was head of ESG, guidelines for organisations and in London with a specific Clients and Products; she was governments. She held various remit to support investment previously co-head of ESG positions there. colleagues in emerging markets & Stewardship at Aberdeen In recent years, as head of and Asia Pacific. He will analyse Asset Management. Capital Markets Engagement, specific long-term factors She will lead and engaging with management she was responsible for involving investee companies’ further develop Majedie’s teams on behalf of all relations with stakeholders in environmental and social commitment to Responsible stakeholders. the capital markets, from stock management and performance, Capitalism. Since Majedie Majedie adopted exchanges to shareholders and as well as the effectiveness of launched its first funds in “Responsible Capitalism” asset managers. governance structures. 2003, the firm has embraced formally as its ESG ethos at its He has over 20 years’ active ownership of its 2012 conference, to explain BEATRIX ANTON-GRÖNEMEYER experience of responsible client investments, voting its overarching company Allianz GI appoints chief investment and active on proposals at all investee purpose: to make money for sustainability officer ownership across roles in asset company meetings and clients – responsibly. Allianz Global Investors has management, research and appointed Beatrix Anton- asset ownership. Grönemeyer as chief sustain- Immediately prior to joining ability officer. This position is ASI, Hartnett was head of global head of ESG based in Maradei and Huttunen’s newly created and is intended Responsible Investment at The Hague, the Netherlands; appointments follow several to underline the importance of Australian superannuation and Julius Huttunen joins new hires to the global sustainability for AGI and its fund, Local Government the company as responsible Responsible Business and customers. Super (LGS). At LGS, he was investment manager, based in Public Affairs team this year. Anton-Grönemeyer reports to responsible for ensuring that Chicago, US. The team serves as a chief executive officer Andreas A$12bn of pension assets Both will report to Roelie van company-wide resource for Utermann. With over two were invested responsibly Wijk-Russchen, global head of responsible business and decades of experience, she is and achieving the maximum Responsible Business & Public investment practices, lending changing jobs within Allianz potential long-term, sustainable Affairs. expertise to ESG integration Global Investors. return. Maradei will manage initiatives, contributing She was most recently hired AAM’s team responsible for to responsible investment as global head of Product BRUNNO MARADEI & all engagement activities, product development projects Specialists Fixed Income. JULIUS HUTTUNEN voting and active ownership, and leading engagement and In addition to the creation AAM strengthens global ESG integration and reporting research efforts to promote of the position of chief responsible investment support and advice as well as understanding of sustainable sustainability officer, the team with two new hires development and maintenance issues and improving company sustainability research team Aegon Asset Management of AAM’s responsible performance. was further expanded. (AAM) has made two new investment policies globally. At the beginning of May 2019, appointments to strengthen its His particular focus will be on ESZTER VITORINO FULEKY Marie Navarre joined AGI in now 14-strong global respon- delivering best in class practises Kempen hires corporate Paris as a senior SRI analyst sible investment team. and processes to ensure AAM’s governance specialist from Amundi. Navarre reports Brunno Maradei joins position in the responsible Kempen Capital Management to Isabel Reuss, director of SRI Aegon Asset Management as investment industry. has hired Eszter Vitorino Fuleky Research.

InvestmentEurope June 2019 www.investmenteurope.net HELSINKI, 24 SEPTEMBER 2019 BENEFIT FROM THE KNOWLEDGE OF LEADING FUND MANAGERS

InvestmentEurope is pleased to announce the launch of the Helsinki Roundtable 2019, taking place on 24th September at the Hotel Kämp. This exclusive event provides the opportunity for 20 key fund selectors to evaluate the investment opportunities presented and to benefit from the knowledge of leading fund managers. Up to five leading asset management companies will present their strategies to top investment professionals in the region. EVENT INFORMATION DATE: 24 September 2019 Complimentary attendance for professional investors involved START TIME: 09:00 in fund selection. END TIME: 12:00 LOCATION: Hotel Kämp

To register your interest in attending this exclusive event please contact Patrik Engstrom: [email protected] or +44 (0)20 3727 9940

For further information visit the event website: Brought to you by: investmenteurope.net/events

Sponsored by: 8 PEOPLE & FUNDS

Fund watch and product launches

Othoz, Agathon Capital and fund introduced in the FTOF range, following the IPO of Universal Investment launch AI fund Franklin Target Income 2024 which raised over $621m Quantitative investment boutique Othoz, in collabora- (€557m) earlier this year from European investors. tion with Agathon Capital and Universal Investment, has The new fund’s objective is to invest primarily in higher launched a defensive mixed fund that makes investment yielding, euro-denominated debt securities issued by cor- decisions based on artificial intelligence. porations globally – including those located in emerging Launched in early May, ART AI US Balanced invests in markets – with a pre-determined yield at the time of S&P 500 Universe companies and annuities. The aim of investments over a five-year period. the fund is to achieve a positive return with reduced risk The fund will be managed by London-based David ratios compared to the stock market. Zahn, head of European Fixed Income and Rod MacPhee, ART AI US Balanced is formed on an active, quantita- vice president and portfolio manager from Franklin Tem- tive investment strategy based on proprietary machine pleton Fixed Income Group. The investment team uses a learning research results. In addition, complex, non-linear top-down analysis of macroeconomic trends, combined interactions can be recorded and taken into account. with bottom-up fundamental analysis to identify invest- The models generate risk-adjusted long portfolios and ment opportunities. flexibly manage the investment level of the fund between www.franklintempleton.com 0% and 50%. The stock selection focuses on stocks from the S&P 500 Index. The corresponding remaining liquidity BNPP AM offers new quant carbon offset fund is invested in short-term government bonds. BNP Paribas Asset Management (BNPP AM) has launched www.othoz.com a quant climate carbon fund stepping up its efforts to www. agathon-capital.de responsible investing. www.universal-investment.com Theam Quant Europe Climate Carbon Offset Plan, avail- able to investors in Italy, is managed using a systematic Franklin Templeton launches green income fund investment strategy designed to capture the performance Franklin Templeton has launched Green Target Income of European liquid equities with high ESG standards. 2024 fund, a sub-fund of the Luxembourg-registered These are selected according to their carbon footprint and Franklin Templeton Opportunities Funds (FTOF) range. the robustness of their energy transition strategy. This is the third “buy and hold” or fixed maturity The project also aims to create long-term jobs and pro- mote sustainable sources of income by encouraging local communities to preserve the forest and its biodiversity. AllianceBernstein expands sustainable fund range The new fund is in line with the launch of BNPP AM´s AllianceBernstein has launched two new sustainable funds to add to its cur- Global Sustainability Strategy, which plans to reduce the rent sustainable fund range – Sustainable Global Thematic Credit Portfolio environmental impacts of its operations. and Sustainable European Thematic Equity Portfolio. www.bnpparibas-am.com The funds exclusively invest in themes derived from the UN Sustainable Development Goals (UNSDGs) in companies that provide products and ser- No more coal for ODDO BHF AM vices addressing these objectives. The focus of the Strategy is primarily on As part of its climate policy ODDO BHF Asset Management positive social and environmental outcomes. The funds will take an active, will from now on exclude coal investments in all portfo- bottom up stock and security selection approach and evaluate the ESG lios which integrate ESG criteria. issues and credentials of each company to assess both risk and opportunity. Overall, this represents €6.6 bn which is equivalent to The Sustainable Global Thematic Credit Portfolio will typically hold about 12% of its assets under management. Specifically, between 75 to 125 bonds. It will primarily invest in corporate bonds of the objective of the coal exclusion policy is to exclude any which minimum 20% will be green bonds. The fund’s holdings will align mining company that generates more than 5% of its rev- with the UNSDG’s and be focusing on three themes climate, health and enues with coal and any power generation company that empowerment. generates more than 30% of its revenues from coal. The Sustainable European Thematic Equity Portfolio will hold around According to the International Energy Agency around

40-60 European stocks with a high active share against MSCI Europe. The 30% of global CO2 emissions in 2017 came from coal com- fund will invest exclusively in companies aligned with forward-looking sus- bustion. tainable investment themes. ODDO BHF AM believes that any coherent strategy to www.alliancebernstein.com combat global warming must address coal investments. www.am.oddo-bhf.com

InvestmentEurope June 2019 www.investmenteurope.net ZURICH, 14 NOVEMBER 2019 BENEFIT FROM THE KNOWLEDGE OF LEADING FUND MANAGERS

InvestmentEurope is pleased to present the Pensionskassenforum 2019, taking place on 14th November at the Baur au Lac in Zurich. This event is specifically designed for executives of pension funds and investment foundations in Switzerland. Delegates will benefit from the knowledge and key insights of industry experts and leading fund managers active in the institutional arena. This is your opportunity EVENT INFORMATION to access insight into pensions regulatory challenges and the impact of ESG/sustainability on investment decisions. The event also offers a DATE: 14th November 2019 highly effective platform for networking with peers. START TIME: 08:00 END TIME: 15:35 LOCATION: Baur Au Lac, Zurich

Register today to secure your free place at this exclusive event. RSVP: [email protected] or +44 (0)20 7484 9768

For further information visit the event website: Brought to you by: investmenteurope.net/events 10

Estimated AUM of COVER STORY €2trn European domiciled ETFs by 2024

Starting with an ‘E’ ETFs and ESG have a letter in common, but is that all they share? Jonathan Boyd, Ridhima Sharma, Eugenia Jiménez and Elisabeth Reyes report on developments

For investors adhering to responsible an active choice to be made suggests 2019 and € 4bn in 2018, where ESG investment dogma, there comes a point that those pursuing a passive approach ETFs assets under management have when, generally speaking, they need to might not be able to make as much of grown by 45%,” he says. decide whether to blacklist companies an impact. “Considering that ETFs are the fastest or pursue engagement. That suggestion is wrong, argues growing segment of the AM industry, While there is no definitive answer François Millet, head of ETF Strategy, ESG ETFs are themselves growing as to which approach works best in ESG & Innovation of Lyxor. much faster than the overall ETF mind of the end goals – inducing posi- “In the European ETF industry, ESG market; they still represent only 2% of tive outcomes as well as making posi- ETFs represent €13bn - as of end-March ETF AUMs in Europe but already 10% tive returns – the very fact that there is 2019 - following inflows of €2bn in of ETF inflows with an acceleration in “WE HAVE ALREADY SEEN SOME MAJOR EUROPEAN SOVEREIGN WEALTH AND PENSION FUNDS ROLL INTO ESG FRIENDLY ASSETS OVER A PERIOD OF MULTIPLE YEARS. IT IS A PROCESS AND WILL CERTAINLY CHANGE SELECTION PREFERENCE, BUT LITTLE IN TERMS OF METHODS. VERIFICATION OF REAL AND EFFECTIVE ESG REMAINS A MAJOR CHALLENGE FOR INVESTORS AND WILL DRIVE THE SELECTION OF THE INVESTMENTS” Danilo Pone, ENPAB

InvestmentEurope June 2019 www.investmenteurope.net 11

Increase in prices of owner- 7.7% occupied dwellings (excluding COVER STORY new constructions) in the Netherlands in April 2019 YoY

2019. We cannot ignore the role of pas- agers of companies. It is also important sive management. “SYNTHETIC to remember that many passive man- “The foundations on which passive agers are also active managers – so, for management is built – transparency, ETFS example, if there is voting on a business accessibility, limited management fees DO NOT such as Renault, it will be done through – mean that ETFs are particularly well both active and passive portfolios. suited to socially responsible invest- VOTE” That said, there are still differences ment. Hortense Bioy, between large active and large passive “With greater consideration given to Morningstar managers. Those such as BlackRock the challenges that lie ahead, all types and Vanguard will tend to pick a theme of investor are now looking to factor with an eye to raising standards across ESG solutions into their portfolios or the board globally – rather than dis- savings. Retail and private banking criminate between company a and clients place considerable importance company b on any particular ESG fac- on this subject – younger generations – tors, she suggests. millennials - in particular. Institutional Thus, on themes such as climate investors too are showing interest in change, diversity, board remunera- responsible investment in order to tion, the engagement will be focused meet expectations of beneficiaries, to on understanding which companies better manage long-term risk and to do things best, which are considered comply with regulatory developments.” leaders in their respectively industries, norms-based analysis and a filter on and based on that information pur- REGULATION controversial activities is applied. suing discussions with other compa- However, there is more to come from “Classical ETFs, based on standard nies. They are trying to effect systemic the ETF industry, not least because of market capitalisation indices simply change, she suggests. regulatory developments. buy all available stocks, irrespective Millet notes: “The regulatory evolu- of the environmental impact of these FIXED INCOME VIEW tion will bring more clarity for inves- companies. As the public opinion’s David Katimbo-Mugwanya, co-man- tors on the objectives, the standards, awareness for ESG topics in general, ager of the Amity Sterling Bond fund the taxonomy, the reporting require- and the climate change issue in par- at EdenTree Investment Management, ments, and the labels applicable to ESG ticular, have substantially increased, points out that improvements in ESG investing, starting with green invest- we can expect that more investors will data is allowing for a more quantitative ments. ask for ETFs that integrate ESG criteria. approach to investing responsibly and “For the first time, indices will be Investors will also want to know what sustainably. used by policymakers as a tool to guide the ESG impact is of their investments. “The prevalence of richer datasets investor choices and re-direct invest- “Thematic funds and ETFs that focus has even led some to consider sustain- ment flows towards climate transition on environmental, social and/or gov- ability as a trend or a factor that can be and alignment with the Paris Agree- ernance aspects are more in demand. dialled up as another source of alpha. ment objectives.” Candriam expects that this trend will Our view is such criteria should be Koen Van de Maele, global head of continue.” firmly integrated into an investment Investment Solutions and member of Hortense Bioy, director, Passive process and complemented by engage- the Executive Committee of Candriam Strategies and Sustainability Research, ment, with the ultimate aim of embed- points to ESG integration into the Morningstar, notes that while ding these intended outcomes into investment process as a reason why increasing numbers of ETF providers investee companies. they should be seen as providing a suit- have signed up to UN Principles for “The exclusion of particular com- able response to ESG demands. Responsible Investment (PRI), and are panies from a permissible investment “Candriam uses the same ESG implementing a responsible invest- universe could, subsequently, be a analysis in its IndexIQ ESG ETFs ment policy, investors need to under- logical conclusion depending on how than the one applied in Candriam’s stand that actions such as voting at enforceable the criteria are and their sustainable fund range. This means company meetings is only something respective tolerance thresholds. It that we don’t simply rely on some that can be done by Physical ETFs. is therefore difficult to envisage the rule-based selection, but we integrate “Synthetic ETFs do not vote,” notes incorporation of ESG criteria into an the knowhow and experience of Can- Bioy. existing bond fund, absent of funda- driam’s ESG team of analysts in the Having an engagement policy is mental change to its investment pro- ETFs. Candriam’s ESG analysis is based important, Bioy continues. With more cess or without some form of impact to on an assessment of the companies’ stewardship teams now in place at the fund’s stated risk-return profile, the business model, complemented with passive managers, it means that there latter of which could trigger a require- a stakeholder analysis. Additionally, a should be more dialogue with man- ment for regulatory approval.” www.investmenteurope.net InvestmentEurope June 2019 12

Increase in industrial COVER STORY 1.9% production prices in Portugal in April 2019 YoY

Jonathan Bailey, head of ESG that have ESG factors embedded rather SELECTOR VIEWS investing at Neuberger Berman, says: than added to existing funds, Craib- Thomas Metzger, head of Asset Man- “Our credit analysts have integrated Cox says the answer “probably depends agement, Bankhaus Bauer, Aktieng- material environmental, social and on whether a team has already devel- esellschaft Privatbank, says growing governance factors into fundamental oped an understanding of ESG factors”. investor interest in solutions that incor- analysis for many years. That allows Finnish manager Evli’s CIO Mikael porate ESG into investment policies Neuberger Berman to have propri- Lundström and head of Sustainability means there is likely to be a etary ESG ratings on every credit that Outi Helenius note that data will play a corresponding increase in products. we invest in – even those where third bit role in credit investors paying more Yet, the starting base remains relatively party ESG ratings providers do not attention to ESG. small still, and there are still questions have coverage like the private loans “In particular, improved and com- about to what extent ESG, even built market. parable data would make ESG inte- into the investment process, meets the “Our credit analysts are constantly gration easier, since the ESG data is needs of the end investor. looking at how they can improve their currently in an early phase, ie, it is not “I think that the share of sustainable ESG ratings - for example in the last comparable, not all companies are investment funds in Germany does not year they have incorporated insights reporting on ESG matters and it is not even make up 5% of the total market. on human capital management from assured. However, current develop- The trend, however, to extend the Glass Door data. They also engage ments are encouraging, eg, Moody’s magic triangle of investment consisting directly with management teams acquisition of Vigeo Eiris (ESG data of return, risk and liquidity by the sus- which adds qualitative insight to ESG provider) and the new EU regulation tainability aspect, is clear. Institutional ratings. We expect to continuously will strengthen the importance of good investors, in part, are transforming improve our ratings as companies pro- quality ESG data.” their entire investment process and vide greater disclosure.” However, they are in the camp that worrying about how sustainable Justin Craib-Cox, co-manager of feel investors do not always need to go investing in the different asset classes the RWC Defensive Convertibles fund, to new funds to get more ESG. can work. agrees most bonds “…already have “We at Evli have been integrating “Due to demand, the number of a credit rating, yet investors expect ESG criteria into corporate bonds’ new products will certainly rise in the active managers to know what could investment process for a long time, future. The problem with standardised cause a published credit rating to and therefore it would not require new solutions such as ETFs, however, is that change, and to make a move before funds in order to have a solid ESG pro- the understanding of the individual that event happens”. cess. We are continuously developing investor from a sustainable investment He continues: “The same should be our ESG approach, and for example angle is sometimes met inadequately. true for knowing if an issuer might just launched separate climate change “Since there is no universal defini- have a material financial impact from principles. Of course, when launching tion of ‘sustainable investing’, when an ESG factor, either on the upside, totally new funds, it is easier to bring investing in a standardised approach, or the downside. ESG analysis helps new developments in ESG into the such as a mutual fund, investors will to create a framework for a manager funds. However, as ESG is evolving often encounter a variety of interpre- to understand the health of the firm’s quickly and in both cases it is likely tations of the theme. Because when governance and its interactions with that you will have to update your pro- it comes to circulation, the product customers and others, giving it a better cess constantly.” provider defines what sustainable overall picture of the health of an organisation. “Our view is that integrating ESG “WHEN IT COMES TO analysis into the fundamental review of an issuer should allow for predictive CIRCULATION, THE PRODUCT – rather than reactive – use of this data. PROVIDER DEFINES WHAT In constructing bond portfolios with a quality bias, we do believe issuers SUSTAINABLE INVESTING considered best-in-class for ESG factors MEANS IN HIS VIEW” can help to avoid downside caused by controversies. But we also recognise Bankhaus Bauer Aktiengesellschaft Privatbank that some issuers are in the process of improving their ESG profiles and using only historical ESG scores and rankings without making a view on future direc- tion may miss these opportunities. Looking to the question of whether it is harder to launch new bond funds

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Increase in number 7.9% of naturalisations in COVER STORY Austria in Q1 2019

investing means in his view.” investors will have more confidence Metzger continues: “The integration REGULATORY EXPECTATIONS in, for example, Green Bonds’ ETFs, of sustainability factors, such as the Brian Higgins, partner, Dillon Eustace, points out the since all bonds in their portfolios are use of exclusion criteria, with the help emerging regulatory burden set to hit investors, including according to an international standard of which, for example, securities from those using ETFs. such as the Climate Bonds Initiative. certain sectors are banned from the “The European Commission is focused on: (i) devel- That is the case of Lyxor Green Bonds, portfolio, or the application of the so- oping regulations for a common taxonomy/classification which have a green bond certificate called best-in-class approach, in which for sustainable activities; (ii) disclosure of ESG related from a third party, a prestigious com- in each case the ‘most sustainable’ risks and how they are incorporated into the investment pany and expert in this field like Vigeo- companies in an industry or group is process; and (iii) low-carbon benchmarks,” he notes. Eiris. invested, so it cannot be directly influ- “To supplement these proposals, the European Securi- “At the same time, there are metrics enced by the investor. ties and Markets Authority provided advice to the Com- for ETFs such as the Carbon Risk Score “In this respect, investors often have mission on possible amendments to AIFMD and the Ucits from Morningstar to help investors to to make compromises with smaller Directive at the end of April. It is intended that these pro- evaluate funds´ carbon risk exposure investment amounts – which, how- posals will bring greater clarity and transparency which and how to contribute to the decarbon- ever, want to leave the management of will boost investor confidence in ESG products. isation of their investment portfolios. the investments to the wealth expert “Each ETF will need to consider the implications of the “As a portfolio manager of the Esfera or fund manager but do not achieve EU legislative package as it applies to them in order to II Sostenibilidad ESG Focus FI fund, I the high initial sums for an individual determine the level of impact which it may have upon have several ETFs related with SDGs special fund. Their view of sustainable them and manage any necessary transition.” in the portfolio. For example, there investing will generally not be fully are ETFs to cope with the following consistent with the approach of a stan- SDGs: gender equality; clean water and dardised mutual fund.” be sometimes easier to launch a new sanitation;affordable and clean energy; Danilo Pone, CIO at ENPAB, the product that meets investor demands climate action; and others. Some of Italian pension fund for Biological for ESG than to change an existing one, them cope with 10 or more SDGs like Sciences, points to regulation as a key but not necessarily as it may depend on UBS ETF – Sustainable Development driver of how ETFs may meet investors’ a number of factors. Bank Bonds Ucits ETF.” sustainability demands. “I think a new fund may prefer Dirk Söhnholz, CEO of Diversifikator, “The impending deadline of 10 June vehicles that incorporate ESG, but let sees new regulation could result in an of this year on which all member states us not forget that there are already amended view of exclusion lists. of the European Union must imple- many assets under management and “We expect that new regulation may ment Directive 2017/828 on ‘encour- these will need to be re-packaged and have an impact on existing respon- aging the long-term commitment of re-structured over time. sible ETFs. It is possible, that exclusion shareholders’ looms. “We have already seen some major lists will be defined which extend the “Under this Directive, subscribers to European sovereign wealth and pen- exclusions currently used. Also, in the an ETF will know the degree of involve- sion funds roll into ESG friendly assets future exclusions may have to be com- ment of managers in the governance over a period of multiple years. It is a plete exclusions and sales up to 35% in of those companies in their portfolio process and will certainly change selec- ‘excluded’ segments will not be allowed while also an investment vehicle tion preference, but little in terms of anymore. In addition, we hope that must disclose their voting policies methods. Verification of real and effec- regulation will require to measure E, S and various activities at shareholder tive ESG remains a major challenge for and G separately so that good corporate meetings. These rules will increase the investors and will drive the selection of governance cannot compensate bad information obligations of ETFs on the the investments.” social or ecological behaviour.” one hand, for example; on the other Fernando Aguado, investments “Investors may, for example, require hand, they will increase the involve- director at Fonditel sees existing ETFs that ETFs not only consider direct CO2 ment or engagement of investors in a facing regulatory headwinds, but that emissions but emissions by suppliers company’s life. this may be more to do with concerns and/or other air, water or land pollu- “ESG factors are increasingly a part of around liquidity rather than imple- tion as well.” portfolio selection and PMs are increas- menting ESG per se. Like others, Söhnholz notes the risk ingly aware of these aspects, as are their Luis Hernández Guijarro, ESG fund that a plethora of new ETFs may come individual component investors. One selector and fund of funds manager at to market as a result of changing atti- might anticipate capital outflows from Esfera Capital Gestión SGIIC, points tudes to ESG. those corporate strategies which are to particular regulatory develop- “As soon as private investors under- less sensitive to modern ESG methods, ments affecting ETFs linked to the EU stand that responsible investing does models and reporting.” Action Plan for Financing Sustainable not require compromises in perfor- Like Metzger, Pone expects a “surge” Growth and the High-Level Expert mance, they should invest only in in the number of new investment Group (HLEG) on Sustainable Finance. responsible ETFs. That would lead to a strategies in the ESG or SRI arena. It can “Of course, due to ‘greenwashing’, surge in new responsible ETFs.” ■ www.investmenteurope.net InvestmentEurope June 2019 14

Animals slaughtered ALLOCATOR PROFILE 25,442,043 in March in Belgium 934

MARNIX PHILIPS Marnix Philips has been product manager Invest- ments at Beobank for the past couple of years. He previously worked as a financial adviser for Beobank. He holds a Bachelors degree in Finance and Insurance from KdG Hogeschool in Antwerp and an MSc in Organisation and Man- agement from the University Of Antwerp.

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Bankruptcies recorded 934 in Belgium in April 2019 ALLOCATOR PROFILE

Fund selection is a key part of Beobank’s efforts to topple Belgium’s incumbent banks, as Elisabeth Reyes finds out Challenging the status quo

Beobank is a Belgian bank that claims more than 620,000 in the portfolio during periods of economic uncertainty, customers across segments such as products and services Philips notes. for individuals, but also SMEs. For investors it has developed a platform that can cater SCREENING to various levels of client, as well as being able to respond “Our quarterly fund selection to identify and select funds to different suitability requirements by factors such as consists of both a quantitative and qualitative approach,” risk sensitivity and time horizons. Philips explains. As Marnix Philips, product manager Investments, “The first quantitative screening is an exclusion screening explains, the bank takes a particular approach to trans- and used to narrow down our fund universe. For instance, parent communication, a rational approach to invest- a fund should have at least $100m in assets under manage- ment risk, and seeks to share knowledge sharing while ment. Funds with lower AUM cannot possibly have the offering access to a wide range of products. same extensive management and research team as larger “In Belgium our goal is to be the challenger to the funds. Moreover, funds with limited AUM are often liqui- classic big bank groups,” says Philips. dated”. “We work on an advisory model The funds that pass this first with open architecture, where we use a screening are eligible for the second model portfolio approach to suit each “WE ENSURE quantitative screening. Here Beobank investors’ risk profile.” will screen per sub-asset class through These model portfolios are con- CONTINUITY IN an in-house developed logarithm. structed from the traditional building Among other factors considered blocks of bonds and stocks, which are OUR SELECTION. include consistency of returns: the then further broken down into dif- CHANGES IN THE preference is for funds that perform ferent sub-asset classes. These are then on a consistent basis rather than those populated with a selection of actively SELECTION SHOULD that perform well for one year but fall managed funds from 11 dedicated BE QUALITATIVE behind in subsequent years. partners. Another important factor for Beo- Philips continues: “We do not offer AND FUTURE- bank is how a fund performs during passive funds although we keep a close a downward market. This gives them eye on the passive range of our part- ORIENTATED” information on how risk is managed. ners. Within this area our interest goes Investors appear to be particularly out mostly to smart beta and factor investing strategies. sensitive to price falls, much more than price rises, Philips “Since we hold long term relationships with our part- suggests. ners they know our investment model very well and thus He goes on to say: “The outcome of the second qualitative which funds might be interesting to us. screening is a ranking per sub-asset class that is used as a “If they launch a new strategy or register an existing basepoint. The qualitative approach is purely teamwork. We strategy in Belgium, they will inform us and set up a do not just blindly select the top funds per sub-asset class. meeting or conference call with the fund manager if nec- “A fund may have an investment strategy that has lagged essary.” due to a past phase in the economic cycle, but could out- Conversely, when partners see a strategy that could perform in another phase. The selected strategies must be be of interest, Beobank will ask the partners for the nec- complementary and we prefer funds with stable manage- essary information. This support from the partners is ment and manager seniority. important, he adds. “We ensure continuity in our selection. Changes in the Beobank continuously screens their fund universe to selection should be qualitative and future-orientated. detect opportunities. Alongside the model portfolios it Therefore we like managers that can deliver in all-weather also offers absolute return strategies through a satellite conditions and as such avoid ‘star managers’.” approach. Beobank believes that a ‘lower for longer’ environment, These absolute return funds can offer risk reduction outputting less performance, will more than ever, ensure through diversification and reduce long term volatility the added value that actively managed funds can deliver. ■ www.investmenteurope.net InvestmentEurope June 2019 16

Spain’s private equity ITALY €6bn investments amounted in €2.8bn 2018 – Invest Europe

Putting the green into alternatives Alternative Capital Partners’ Emanuele Ottina outlines the firm’s focus on illiquid alternative investments following ESG principles. Eugenia Jiménez reports

Co-founded in Italy in 2018 by Emanuele Ottina and Evarist Granata, “IN ITALY THE SEGMENT Alternative Capital Partners (ACP) SGR is an asset management firm OF ILLIQUID THEMATIC investing in alternatives and applying ALTERNATIVE ESG principles to the entire spectrum of private assets. INVESTMENTS REMAINS Ottina is the firm’s executive chairman and the head of the private UNEXPLORED: THE equity real estate division; while PENETRATION RATE OF Granata is the firm’s CEO and head of the private capital unit. Both form ALTERNATIVE ASSET part of the firm’s management board, CLASSES IS MUCH working alongside independent directors Michele Garulli, formerly LOWER THAN head of mid-corporate equity invest- ment at Mediobanca ; Carlo Durante, IN OTHER founder of Maestrale; and Edmondo EUROPEAN Tudini, professor of banking & insur- ance at the Milan-based business COUNTRIES” school SDA Bocconi. Emanuele Ottina, Signatory of the Principles for Alternative Capital Responsible Investments (PRI) since Partners its foundation, ACP was set up under the belief that the returns that can be generated for investors through investments in alternative illiquid BIOGRAPHY niche segments can be further fed by Emanuele Ottina, founder the focus on ESG sustainability prin- & executive chairman, ciples, capable of generating concrete is also head of the private and significant impacts on the envi- equity real estate division ronment and on the real economy of of Alternative Capital Partners a country. (ACP) SGR, responsible for such Ottina says: “In Italy the segment of unit, business development & fund illiquid thematic alternative invest- raising. ments remains unexplored: the Before launching ACP in 2018, penetration rate of alternative asset Ottina worked at Morgan Grenfell’s classes is much lower than in other private equity department for 11 European countries. years. Prior to that, he was part “ACP was born to fill this gap and of the investment banking is the only Italian asset manager unit of JP Morgan, and focused on the entire spectrum formerly, he served at Deloitte of private assets, created with the in Italy, the UK, and the US, mission of combining sustainability, where he was part of the innovation and alternative company’s corporate finance investments.” & audit division. With a pioneer positioning on

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Sweden’s private equity €2.8bn investments in 2018, up ITALY from €1.8bn in 2015

alternative niche segments of private a positive impact on the environment market trends decorrelation, stable, capital and private equity real estate, and the economy. long term returns, and positive ESG ACP is now focusing on the launch ACP considers ESG a crucial factor impacts.” and management of two closed-end in evaluating alternative investment With regards to the best investment alternative investment funds (AIFs), opportunities. Proof of this is the fin- opportunities the alternative manager by integrating ESG principles to all tech investment valuation platform currently sees in Italy, Ottina points at phases of the investment process. the firm is currently developing. green infrastructure projects to facili- By investing in the development The tool – designed for risk rating tate the energy transition. of new green energy infrastructure (both financial and ESG), pricing and According to him, the 2030 Climate projects and in urban regeneration of monitoring of the investments in the Agenda (EU’s climate policies set up degraded real estate assets – in order AIFs that are being launched – will for 2030) to limit global tempera- to turn them into green and healthy implement a set of financial and ESG ture rises will require huge amounts buildings for the benefit of new gen- metrics based on alternative and of investments from all countries, erations, the firm believes it will be traditional data sources for invest- including Italy, in green infrastructure making a significant impact on the ment risk and asset management to boost this green transition. real economy of Italy. activities. The current 2030 goal is a 40% While the investment firm is pri- emissions reduction benchmark. marily aimed at professional institu- FUNDS SET TO BE European Commission figures, pub- tional investors, including insurance LAUNCHED lished last year after the adoption companies, banking foundations, ACP is launching two thematic AIFs, of new EU laws on renewables and pension funds, social security funds, which will invest in infrastructure, energy efficiency, suggested that at banks, private capital, and private including social real estate infrastruc- least 45% might be achieved. equity real estate fund of funds, it ture, with the aim of supporting the Ottina explains: “In our country , also targets private investors such as energy transition and the educational the offer of capital and financing to family offices and wealth manage- growth of new generations, respec- support it is currently limited to a few ment companies. tively. The strategies will be launched private equity funds and traditional “They are increasingly interested in in the forms of both debt and equity commercial banking channel, focused innovative alternative illiquid invest- instruments. both on the secondary market and ments and non-correlated financial More precisely, in the energy sector, large-sized renewable projects already assets, capable of generating attractive ACP’s strategies seek to compen- in operation. returns and illiquidity premium in an sate for the absence of Italian debt “As a consequence, there’s a tre- expected scenario of low interest rates funds investing specifically in new mendous opportunity to invest in response to the current conditions green energy infrastructure projects, domestically in greenfield energy of volatility,” Ottina outlines. including energy efficiency, renew- infrastructure and energy efficiency He continues: “Our aim is to com- ables, circular economy, distribution projects of small to medium size. bine profit with risk management, and recharging networks. “We equally believe that investing generating returns for our investors As for the real estate industry, the in problematic properties in the that are strongly decorrelated from firm’s investment solutions have Italian market – converting them into financial market trends, thanks to the been designed to bridge the lack innovative, sustainable and environ- adoption of multiple, thematic and of private equity real estate funds mentally-friendly social real estate diversified alternative strategies.” aimed at converting, enhancing and infrastructures for the benefit of mil- regenerating buildings into urban lennials and centennials – represents ESG VALUATION social infrastructure, through innova- the new frontier of private equity real PLATFORM tive management formats and styles, estate.” According to Ottina, alternative, sus- including smart/coworking, student with 2019 being the firm’s debut tainable and innovative are the firm’s housing, hosteling and co-living/ year, its main goal is to close the first key investment motifs and are the shared housing. round of fundraising for the firm’s first decisive elements in the construction When asked whether alternative two strategies at €50m and €100m of of ACP’s range of investment solu- credit assets could potentially help AUM, respectively by the third or the tions. investors to reduce risk given their fourth quarter of the year. For the manager, ESG means inte- lesser downside and price volatility Once this objective is achieved, the grating environmental, social and compared to public credit, Ottina manager will focus on operational governance principles into every step says: “We think that investments in execution and will subsequently of their investment valuation and alternative credit assets themed on launch a second private placement asset management process, in a way infrastructure represent an important round for both funds in the second that can provide risk adjusted finan- opportunity for public credit investors quarter of 2020, with the aim of cial returns to investors while having since these allow them to diversify closing them at about €500m by the their investment portfolios with high summer of 2020. ■ www.investmenteurope.net InvestmentEurope June 2019 18

March 2019 rise in turnover GERMANY/ESG 1.6% of accommodation and food 31,068 services in Germany

Beyond the spread Bond investors are increasingly considering ESG factors in the analysis of credit risk. Ridhima Sharma reports

Despite the noise around equities and GERMANY offering investors the opportunity to sustainability, there is an increasing DEVELOPMENTS build a broadly diversified, sustainable hive of activity around fixed income Scope currently covers 145 bond funds portfolio. and ESG, according to recent figures that explicitly focus on sustainability published by Scope Analysis. issues. Together, the funds currently INTEGRATION It found that some 146 asset man- manage just under €30.4bn. While the ESG integration in equities agers have become signatories to Thus, it notes, the supply of sustain- has been advancing for almost two the UN Principles for Responsible able pension funds a market such as decades, the application of ESG criteria Investment (UN PRI) Credit Rating Germany is still significantly smaller in the bond sector has only attracted Statements, and are committed to the than that of equity funds (around 370 increased attention for a relatively systematic and transparent applica- funds with sustainability relevance and short time. tion of ESG criteria in bond analysis assets under management of around Bond investors, unlike equity inves- and investment decisions. €90bn). Of the 145 ESG-related bond tors, have no voting rights at general By comparison, in 2016 there were funds in Germany, 15 currently hold meetings and therefore can only only 91 such asset managers. The Scope’s top rating. exercise their influence through direct number of rating agencies belonging Nevertheless, the number of pension communication with management. In to the signatories has also increased funds with sustainability relevance is addition, when determining the price from six to 18, according to Scope. steadily increasing. For example, inves- of bonds, macro factors such as interest One reason for this development: a tors in the “Renten Euro Corporates rates traditionally dominate. The lower growing number of empirical studies Investment Grade” now have 32 funds liquidity of the bond compared to stock and evaluations suggesting proof of with a sustainable approach to choose markets ensures a delayed consider- the relevance of ESG factors for bond from. By comparison, at the end of ation of ESG relevant news. In addition, spreads. 2015 there were only 20 funds. ESG factors that only have a long-term Bond investors expect a signifi- Even in smaller peer groups such impact have little impact on short- cant increase in the relevance of ESG as “Renten Emerging Markets Corpo- dated bonds. criteria, according to a CFA Institute rates”, sustainable funds can now be For many German investors, ESG survey. The proportion of investors selected. Not only the number and integration equals negative screening, who hold governance relevant for volume, but also the diversity and the for example, against human rights. 2022 government bond spreads is range of investments in sustainable Controversial business practices ( 53% (up from 41% in 2017). investments are steadily increasing, as defined by the UN Global Compact Principles) such as child labour or PRI SIGNATORY GROWTH forced labour, controversial business areas such as atomic, biological, chem- 100 2,500 Number of AOs (RHS) AO AUM ($trn, LHS) ical weapons, land mines and cluster Number of signatories (RHS) AUM ($trn, LHS) bombs, gambling, tobacco, fracking or 80 2,000 coal mining, nuclear energy or pornog- raphy are also frequently encountered as negative selection criteria. 60 1,500 However, Scope says its own experi- ence with institutional investors/asset 40 1,000 managers, suggests integration of ESG information in analysis and selec- 20 500 tion of securities, rather than negative screening before analysis of securities, 0 0 is dominating the status quo of ESG 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 approaches. ■ As at May 2019 Source UN PRI

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Electric cars registered 31,068 in France in 2018 SWITZERLAND

The circular economy is one of the themes to come out of concerns about sustainability. Elisabeth Reyes reports on how Decalia’s approach has fared one year on Running in circles

There are a number of consumer trends that are being watched by asset managers for signals on which type of “THIS MAJOR strategy to pursue. In May 2018, Geneva based Decalia Asset Management CHANGE IN OUR launched a strategy based on the so-called circular economy: ECONOMIC AND in this the traditional linear economy – take, make and waste – is replaced by the circular model – re-design, recycle, CULTURAL MODEL repair and reuse. Concerns over sustainability are shifting WILL FOSTER THE consumption patterns this way. A year on, in April 2019, the manager felt it was opportune EMERGENCE OF NEW to do its commercial launch of the strategy, called Decalia Circular Economy, which is a global equity fund. BUSINESS MODELS” The investment team, led by Clément Maclou – Clément Maclou, Decalia co-manager of the Circular Economy fund, and lead Asset Management portfolio manager of the Decalia Millennials and Silver Generation funds – has expanded by some four analyst- portfolio managers since he joined in July 2016 after a “This major change in our economic and cultural model decade at CPR Asset Management. There he co-managed an will foster the emergence of new business models and create ageing population fund. substantial opportunities for the companies able to respond The Decalia Silver Generation fund focuses on the ageing to this trend,” Maclou says. population and longevity, while the Millennials fund seeks to capture the disruptive nature of the millennials INVESTMENTS consumption. Inspired by the Ellen MacArthur Foundation’s work and by “The circular economy fund complements our Millennials employing additional research material – Accenture, EY, and Silver Generation strategies and underscores our strong and others – the team has created a universe of potential commitment to invest on changes of consumer trends. These investment candidates and has condensed it into a portfolio profound paradigm shifts have a lasting impact on the global with its stock picking expertise, explains Antonio Garufi, economy. We use the same proven investment process for co-portfolio manager of the Circular Economy fund. the three funds, while adjusting to the peculiarities of each “Our fund has a promising valuation profile coupled with theme,” explains Maclou. a superior and sustainable ROCE profile compared to the The team opines that the transition from the old linear global equity index.” economy can have not only a positive impact on the Over the past year, the investment team has fine-tuned environment, but also a positive impact on business. the investment process and portfolio, while interacting The circular economy looks at all the options across the with industry experts and specific service providers in the value chain, facilitating breakout from what is seen as the sustainability space. The team now works with MSCI for the deadlock of the linear economy, by enabling products that ESG analysis process. are designed from the outset for easy dismantling and “We feel we are differentiating ourselves from the classic recycling. ESG approach as we invest in companies with an active role Moreover, it shifts the classic ownership concept towards in the transition towards the circular economy”, adds Garufi. rental and utilization with reliance on renewable energies. Roadshows to Italy and Switzerland suggest the theme is Initiated about ten years ago, this movement has now one that chimes with investors. reached the public and is seen as becoming a major trend “In the short term, the regulation is clearly favourable, over coming decades. Proponents point to a positive with the recent examples of China banning plastic import environmental impact, resource saving and cost cutting. EU or the EU’s push against single use plastic. On top of GDP is predicted to be 7% better versus the linear model by regulation, we see consumers who are willing to pay more 2030 on this basis. for sustainable products”, explains Maclou. ■ www.investmenteurope.net InvestmentEurope June 2019 20

Tonnes of sulphur hexafluoride RESEARCH 786 sold to German businesses by 29,000 domestic gas traders in 2018

Germany returns to growth German’s economy returned to growth in Q1 2019, helped by higher household spending and a booming construction industry. Ridhima Sharma looks at the numbers

In the first quarter of 2019, the gross the net position appears to have been domestic product (GDP) in Germany “THE OUTLOOK neutral. rose by 0.4% on the fourth quarter He adds: “Should the US administra- of 2018 after adjustment for price, FOR EXTERNAL tion follow through on its threat of seasonal and calendar variations. The DEMAND IS tariffs on EU car exports, then a full Federal Statistical Office (Destatis) also transatlantic trade war will ensue, gen- reports that the German economic DARKENING” erating a major downside risk for Ger- performance had declined slightly in Azad Zangana, Schroders many. Our forecast assumes the US will the third quarter of 2018 (-0.2%) and not go that far, but at the same time, we stagnated in the fourth quarter of 2018 do not expect any meaningful rebound (0.0%). in external demand in the near future.” The quarter on quarter comparison German GDP shows the country (price-, seasonally and calendar- isn’t heading for a downturn, Andrew adjusted) shows that positive contri- Scott, associate director at JCRA, butions mainly came from domestic 2018 and, where necessary, incorpo- said: “German GDP data for the first demand, according to provisional cal- rated new statistical information in the quarter provided reasons to be hopeful culations. calculation of results. This did not result that Europe’s largest economy isn’t In the first quarter of 2019, fixed in any changes of the gross domestic headed for a protracted downturn. The capital formation in construction and product data published so far. economy grew 0.4% in the first three in machinery and equipment increased months of this year as forecast, despite considerably compared with the fourth HEADWINDS manufacturing suffering a sharp con- quarter of 2018. Household final con- Azad Zangana, senior European econo- traction due to rising trade tensions. sumption expenditure, too, increased mist and strategist at Schroders com- “Having contracted in Q3 and stag- substantially on the previous quarter. ments: “Germany’s economy has been nated in Q4 of 2018, Germany growing However, government final consump- buffeted by a number of headwinds in again. But there are plenty of concerns tion expenditure recorded a decline. recent quarter. Changes to car emis- for the world’s second largest exporter, There were mixed signals regarding sion testing following the Volkswagen as protectionist policies continue to foreign trade; both exports and imports scandal led to a Europe-wide backlog dampen global trade, while eurozone increased compared with the previous of testing and supply of new passenger economic growth remains weak. quarter. vehicles. “Germany’s ZEW indicator of eco- Compared with a year earlier, the “In addition, a drought in Northern nomic sentiment unexpectedly fell to price-adjusted GDP rose by 0.6% Europe caused the water level of the -2.1 points in May, down from 3.1% in (calendar-adjusted: 0.7 %) in the first river Rhine to fall to the point where April and a way off expectations for it quarter of 2019, following increases of cargo could not be shipped in or out of to rise to 5.0. The macro environment 0.9% (calendar-adjusted: 0.6%) in the key manufacturing hubs. These tem- is challenging, particularly for export fourth and 1.1% (calendar-adjusted: porary disruptions have almost abated, sensitive countries, and this is being 1.1%) in the third quarter of 2018. enabling activity to rebound to more reflected in the surveys of businesses The economic performance in the normal levels. and investors. first quarter of 2019 was achieved by “Looking ahead, while the domestic Scott continues: “The euro barely 44.9 million persons in employment, demand situation has stabilised, moved on the news, with one-year which was an increase of 481,000, or the outlook for external demand is market implied volatility in the single 1.1%, on a year earlier. darkening. The escalating trade war currency currently towards its lowest In addition to calculating first data between the US and China is likely to levels on record. At the current level of for the first quarter of 2019, the Federal continue to have hurt international €/$ at around 1.12, there is little reason Statistical Office also reviewed the trade and demand for German exports. to be buying the single currency which national accounting results published Both exports and imports are reported is historically fairly cheap, but also for the individual quarters and the year to have risen in the first quarter, but probably fairly valued.” ■

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Number of investment 29,000 professionals worldwide who UNITED KINGDOM passed Level I CFA Exam in Dec 2017

Chartered Financial Analyst UK has launched a new qualification in ESG investing for investment professionals aimed at contributing to the development of the investment sector’s skills in responsible investing. Eugenia Jiménez reports CFA UK unveils ESG investing certificate

The Certificate in ESG Investing, which is recognised and investing and will equip professionals with the skills and supported by the United Nations’ Principles for Respon- knowledge to integrate ESG issues into their daily work. sible Investment (PRI), is the first formal qualification on The syllabus covers broad issues such as an introduction ESG investing available sector-wide to investment profes- to ESG, the development of this kind of investing and sionals in the UK. technical issues such as portfolio construction and the Revealed at the Chartered Financial Analyst (CFA) incorporation of ESG criteria to it. Institute Annual Conference in London, the Certificate is Goodhart emphasised that the content is deliberately designed for investment professionals in all roles, from non-prescriptive with the aim of enabling individuals and asset management to sales and distribution as well as organisations to continue to hone their own approaches to students who are looking for a career in the financial sector. ESG while ensuring a standard level of competency. According to the CFA UK, its introduction follows a The qualification is modelled on the existing CFA UK’s surge of interest in ESG from investors in recent years Investment Management Certificate (IMC), which is and will help to meet the investment sector’s increasing considered the benchmark entry-level qualification for demand for further education, guidance and standards the UK investment profession. around ESG. Will Goodhart, chief executive of CFA UK, said: “The ROLL OUT launch is taking place after talks with the investment A pilot exam with professionals from firms including management sector for the last couple of years. HSBC and Vanguard is scheduled to take place in early “When we felt there was real demand from investment September, at which point general registration will open. management firms, we put together a panel of The first official open sitting of the exam will be professional investors that has helped us to develop a available from 1 December 2019. syllabus…” CFA UK said the estimated time for study will be 130 “The certificate is intended to be a threshold hours, after which candidates will go to a test centre to do competency exam to provide people with a sufficient a 100 questions exam over the course of two hours and 20 understanding of what ESG investing is, so they can minutes. It costs £470. engage with it effectively for their clients,” Goodhart Goodhart said: “CFA UK’s purpose is to make sure that explained. investment professionals are technically and ethically The qualification sets out the fundamentals for ESG competent to serve their clients well. Clients understand that ESG factors are financially material and expect their managers to help them meet their fiduciary duties by “THE CERTIFICATE WILL integrating ESG into analysis, valuation and investment HELP PROFESSIONALS decision-making. “The certificate will help professionals to build and TO BUILD AND demonstrate expertise in ESG investing and investment firms to extend their resources and illustrate their DEMONSTRATE commitment. We are pleased to support the development EXPERTISE IN ESG of the sector’s skills and competencies in this critically important field.” INVESTING” Goodhart also said that although the Certificate has been Will Goodhart, CFA UK launched just in the UK so far, the global association does not rule out the possibility of launching it in other markets, depending on the success the qualification has. ■ www.investmenteurope.net InvestmentEurope June 2019 22

Q1 2019 gain in ALLOCATOR PROFILE 0.4% German GDP 2.1%

DIRK SÖHNHOLZ Dirk Söhnholz is founder and CEO of Diversifi- kator, an online model portfolio strategist (B2B&C) with focus on ESG. He is an honorary professor of asset management at Leipzig University. Previously Söhnholz worked with Boston Consulting Group, Feri Private Equity, Feri Alternative Asset, Feri Insti- tutional Advisors and Veritas Investment.

www.investmenteurope.net InvestmentEurope June 2019 23

April 2019 inflation 2.1% in German wholesale ALLOCATOR PROFILE trade selling prices

Bringing ESG to model portfolios ESG strategies are the most popular strategies notes the founder of online portfolio strategist Diversifikator, Dirk Söhnholz, in talks with Ridhima Sharma

Frankfurt-based online portfolio example, Diversifikator is currently ments in their own funds by managers. strategist Diversifikator came to developing an ETF based impact That said, the offshore world is not one market some three years ago with an strategy on behalf of one client. This that would necessarily be avoided. adviser-centric approach to invest- also seeks to use themed ETFs, such “We follow a ‘no data’ approach, ments, while also being open for self- as those focused on future mobility or therefore I do not have statistics about directed investments. gender and inclusion. my clients, but I can judge myself. Seeking to offer unique and fully “Our selection processes, both for Historically, I have invested quite sig- rules based ‘passive’ single and multi- ETFs and direct equities, are fully rules nificantly in ‘offshore’ private equity asset, forecast- and optimisation-free, based. I would not call it quantitative, and hedge funds. Since 2010 though, robust and transparent portfolios, it though, since most of the selection I have only invested in liquid funds. therefore aims to enables diversifica- criteria are ‘feature’-orientated. That Nowadays, I use some ETFs, but future tion by investment philosophy in means that we select the ETFs which investments will mainly be in equities. relation to traditional discretionary are based on the strictest ESG or SRI “Personally, I would be happy to and forecast based quantitative invest- indices. If we find several ETFs for the invest, for example, in Cayman Islands ments. domiciled hedge funds. Most German Thus far, AUM remains relatively investors would clearly prefer Lux- low, but as Dirk Söhnholz, founder and “OUR SELECTION embourg or Ireland regulated funds, CEO, explains: “I started the company though.” in 2016 and most advisers and inves- PROCESSES, BOTH tors want some track record before FOR ETFS AND RISK they consider investments. Active mar- Söhnholz tends towards performing keting of the portfolios thus will only DIRECT EQUITIES, risk control himself – given the reli- start this year.” ARE FULLY RULES ance on ETFs. Given the focus on offering model “I have seen and analysed many portfolios, there is a reliance on rules, BASED” sophisticated models, but I am per- but this does not just mean tracking fectly happy with simple approaches indices. Initial portfolios were ETF such as 200-day trading day signals. If based, but since 2016, most new port- same strict index, we use the one with you compare many ‘actively’ risk man- folios facilitate direct equity exposure. the best tracking difference which is a aged funds with a benchmark of a pas- “Most of our portfolios do not exist substitute for the lowest cost.” sive equity investment combined with anywhere else. We have passive multi- “For stocks we use many 100% a 200-day-average signal, the latter will asset portfolios, ETF portfolios only exclusions and then select the ones often perform better using listed alternatives, ESG ETF with the best ratings for E, S and G “For my equity portfolios I also use portfolios, and direct ESG equity port- separately. Apart from the maximum trailing 12 months loss, which works folios, for example, for listed real estate, loss in the previous year we do not use quite well. Professor Schuhmacher at listed infrastructure or German stocks,” financial criteria for stock selection. Leipzig University has conducted some Söhnholz states. Interestingly, the results of most of very interesting research showing that Using ETFs that are publicly distrib- these simple portfolios are very attrac- complex risk measure typically doesn’t uted in Germany means sourcing is tive. outperform simple ones. relatively easy. “I like ETFs, mainly because they “I expect a significant switch of allo- Söhnholz continues: “For our stan- are rules based and transparent. For cation to passive and to ESG portfolios. dard model portfolios, we analyse the active managers, transparency, which Traditional active funds and hedge available ETFs once a year and thus requires a clear and detailed invest- funds will lose share. Also, I presume create an ‘approved’ list. For custom ment strategy, is key for me. Also listed alternatives such as infrastruc- portfolios we constantly monitor the important are low costs and a high ture to increase their share in portfo- relevant universe.” investment by the fund managers.” lios. Listed real estate will replace some Another point of note is the popu- As for red flags, Söhnholz points to unlisted real estate but private equity larity of ESG-strategies, he adds. For opaqueness, high costs and no invest- will stay attractive.” ■ www.investmenteurope.net InvestmentEurope June 2019 24

Sterling exchange SPAIN/ITALY €1.1315 rate on 21 May 2109 13%

Introducing a particular focus to its plans for Spain and Italy, GMO recently brought two alternative strategies to these markets. Eugenia Jiménez reports Tailoring liquid alts to southern Europe

Co-founded in Boston by Jeremy Grantham over four decades ago, Grantham Mayo Van Otterloo (GMO) JEREMY GRANTHAM recently registered two of its flagship liquid alternatives Jeremy Grantham co-founded GMO in 1977 and is a member of GMO’s funds for sale in Spain and Italy. Asset Allocation team, serving as the firm’s chief investment The US headquartered, privately owned global strategist. investment manager counts offices in San Francisco, He is a member of the GMO Board of Directors and has Singapore, Sydney, Amsterdam and London, although also served on the investment boards of several non-profit its expansion into southern Europe has relied on a organisations. distribution agreement with the Allfunds platform. Prior to GMO’s founding, Grantham was co-founder of This means institutional investors from the two Batterymarch Financial Management in 1969, where he countries now have access to the pair of Ucits strategies recommended commercial indexing in 1971, one of several from the $66bn AUM manager. claims to being first. GMO has chosen the GMO Global Real Return Ucits He began his investment career as an economist with fund and the GMO SGM Major Markets Investment Royal Dutch Shell. fund to be distributed in the two countries based on a combination of factors ranging from their proven strength in the long-term, valuation-based asset to grow our business in these countries. However, allocation, and local investor demand. there are some inherent differences between different The GMO Benchmark-Free Allocation Strategy, which markets in Europe, likely to be benefitted from a tailored is available via the GMO Global Real Return Ucits approach. fund, is a multi-asset unconstrained strategy that was “For example, we are conscious that both Italy and launched in 2001, based on a dynamic, valuation-driven Spain have a large amount of retail savings, which asset allocation approach to generate long-term annual are accessible through open-architecture distribution returns of 5% over inflation (net of fees). channels of local banks. GMO Systematic Global Macro Major Markets Strategy, “This has both implications for the suitability of vehicle available via the GMO SGM Major Markets Investment type, and for the accessibility through local platforms fund, is the liquid alternative version of a hedge fund the such as Allfunds, both important factors to consider firm has been running since 2002. when assessing how to gain traction in these markets.” The strategy combines long-term valuation signals with shorter-term sentiment indicators, with the goal to CLIENT BASE deliver absolute returns of 5% over cash by taking long Institutions, family offices, advisers, intermediaries and and short positions on equities, bonds, currencies and wealth managers are among the firm’s clients. commodity indices. The institutions range in type from corporate and “Over time this strategy has demonstrated a low public defined benefit and defined contribution correlation to traditional asset classes making it an retirement plans to foundations, endowments, and appealing diversifier for investors,” GMO underlines. sovereign wealth funds. GMO says it is looking to further develop its business The manager has worked with families since its in the Southern European markets as well as catering foundation. It also collaborates globally with a broad their regional preferences in terms of vehicle´s type and range of investment advisers. platform´s availability. But the manager also positions itself as a resource in “In southern European markets, we are proactively a broader sense, aiming not only to provide funds, but engaging with a range of potential clients and platforms, also solutions and insights being sought out by advisers, such as Allfunds, able to provide us with the opportunity private banks, wealth managers and other intermediaries.

InvestmentEurope June 2019 www.investmenteurope.net 25

Proportion of decision 13% makers in venture capital SPAIN/ITALY in the UK who are women – 2017 Diversity VC Report

“We are keen to ensure that we identify the right ASSETS UNDER MANAGEMENT strategy for each potential client by considering various factors including risk appetite, desired exposure, structural requirements, and how we can complement any existing managers that they invest with, especially given that our valuation approach can often be a good Multi-asset $30bn diversifier.” EMD STRATEGY TO BE LAUNCHED In addition to the two Ucits alternatives funds, GMO is Equities set to launch a new vehicle for its emerging market debt Absolute $20bn return (EMD) strategy in the southern European markets. $8bn Fixed It has managed a hard currency EMD strategy since income 1994, rooted in looking to valuations and with a strong $6bn focus on bottom up selection among sovereign and quasi- sovereign issuers. “We believe that our approach provides our clients As at 31 December 2018 Source GMO with the best chance for long-term success in this asset class while differentiates us from other emerging debt pared to other asset classes, while offering an alternative managers who focus on top-down country, currency, or to getting paid for taking risk, in contrast to traditional corporate investments. For better suitability to investors asset classes, which are now generally expensive, and lack in southern Europe, we are setting up a Ucits vehicle in directional exposure. addition to the existing funds.” GMO believes the US equity market is mostly overvalued, especially excluding the small caps universe. INVESTMENT PROCESS As long as the firm has the ability to be unconstrained, it GMO believes that a valuation-based approach best does not invest in this asset class. serves clients over the long term. However, to successfully However, given the case in which clients need to be apply this philosophy across the different asset classes exposed to US equity, GMO would prefer to invest in high requires a deep understanding of the unique opportuni- quality stocks. ties and challenges of each market. With regards to responsible investing, GMO believes The firm invests in multi-asset, equity, fixed income, ESG factors can have a meaningful impact in the long- and alternative markets. Each investment team term success of companies and countries. The firm implements an active investment process that is tailored incorporates where it believes they will have a positive to a specific area. While some of GMO’s investment impact in the long term, risk-adjusted investment teams rely on innovative quantitative tools, others use returns and further develop clients´ goals. rigorous fundamental research, and others blend the two In 1987, GMO started implementing ESG-related approaches. factors into client portfolios, including social and GMO actively promotes collaboration and exchange environmental screens. Today, the manager continues of ideas across the different investment teams. “Forums to focus on understanding how the integration of ESG that encourage this include both formal investment factors can improve its clients’ investment results while ideas meetings and investor retreats, as well as frequent help itself to evolve its investment practices. informal cross-team meetings and discussions,” the company outlines. BUSINESS PLANS The firm seeks to provide positive absolute returns When asked by its business plans, GMO says its main goal by focusing on the most attractively priced asset classes is to deliver higher investment performances and advice while aims to avoid the most over-priced asset classes. to its clients. “We maintain an objective and disciplined view of “We recognise that to a large degree, our ability to asset prices around the world. Using the framework of achieve our performance objectives will dictate our our proprietary ‘7-Year Asset Class Forecasts’ as a basis future growth potential. Accordingly, we would like to for valuation, we identify those assets that are priced to grow at a pace that is consistent with our goal to perform deliver attractive long-term returns versus those assets in a superior way as an investment organisation. which are trading at a premium relative to their intrinsic “We have established growth limitations for all fair value.” products especially where market liquidity restricts size and flexibility. ASSET ALLOCATION “We believe that controlled growth has a very positive For GMO, emerging value equities is currently the most impact on existing client relationships as it ensures that attractively valued single asset class. The firm also favours they receive the performance we strive to deliver above liquid alternatives, which have shorter duration com- all else.” ■ www.investmenteurope.net InvestmentEurope June 2019 26

Q1 2019 YoY CO2 BUSINESS DEVELOPMENT 0.8% emissions fall in the Netherlands

Heading for the Continent LGIM may have British roots, but markets such as Germany are core to its ongoing business development in the region. Ridhima Sharma reports

Legal and General Investment Man- “By engaging with businesses, we In Germany, Ireland, Italy and the agement (LGIM) offers strategies aim to unlock value for investors and Netherlands, the asset manager has across the full spectrum of asset shape the future and sustainability local offices where its local distri- classes, including equities, bonds, of financial markets.” bution teams are based. These are property, alternatives and cash, as supported by functions based in well as multi-asset strategies tailored VICTORIAN ORIGINS London, including investment man- to the needs of institutional and LGIM is the investment management agement, client relationship services retail investors. arm of Legal & General Group, with a and marketing. Having grown its business over heritage dating back to 1836. “We want to evolve our wholesale/ time, and following another year Its asset management business retail business from a specialist ETF of growth through 2018 despite a was established in 1970, initially provider to a full-service provider in backdrop characterised by market under the name of Legal & General the ETF market,” says Königsmarck. volatility, this year the manager has Investments, which later became “We see significant growth poten- surpassed £1trn (€1.14trn) in assets LGIM. The company started to tial in this market. Customers have under management. manage assets for pension funds, focused on just one or two large pro- This has enabled it to stake a posi- institutional and private clients. viders, but now want to have greater tion as the largest European institu- LGIM is active in all the key Euro- diversification within their port- tional asset manager, and one of the pean markets, whether with a direct folios. In addition, the investment largest globally. local presence or by serving them behaviour of customers is changing, Philipp Graf von Königsmarck, from headquarters in London. with a desire to invest responsibly head of Wholesale Sales, Germany playing an increasingly important says: “Our success has been built ASSETS BY CLASS role. New products are required to by focusing on clients and providing meet this need. them with services and solutions “LGIM can differentiate itself from that meet their needs. LGIM is other asset managers through its also one of the biggest providers of active participation in voting rights index fund management – and at Solutions – in actively managed assets as well €568bn the forefront of developments in Active fixed income as passively managed assets. We can liability-driven risk management €181bn also help investors find new sources solutions. of yield at a time when interest rates “What makes us unique is that Other continue to be low. We think that €36bn we are aware of the responsibility emerging markets debt can be a that comes along with our scale. We Index solution for many investors looking €346bn play an active role in the compa- for yield.” nies we invest in, from exercising He continues: “Germany is one shareholder voting rights to directly of the most important markets in As at 31 December 2018 Source LGIM internal data. These figures include assets managed by engaging with companies at a board LGIMA, an SEC Registered Investment Advisor. Data includes derivative positions. continental Europe for us. We have level. May not total due to rounding. started to position ourselves in this

InvestmentEurope June 2019 www.investmenteurope.net 27

Q1 2019 permissions to BUSINESS DEVELOPMENT 75,600 construct residences BUSINESS DEVELOPMENT in Germany

market and want to grow steadily with a long-term perspective. The “LGIM CAN DIFFERENTIATE launch of our new Core, low cost equity ETFs in January was the first ITSELF FROM OTHER step in building up a bigger product ASSET MANAGERS range in Germany. Currently we are offering 26 ETFs in Germany and, in THROUGH ITS ACTIVE the next few years, we aim to sub- stantially grow our product range PARTICIPATION IN there. VOTING RIGHTS – IN “We are active in European mar- kets, whether with a local office ACTIVELY MANAGED or by serving the regions from our headquarters in London. We want to ASSETS AS WELL AS continue to implement our growth PASSIVELY MANAGED plans on the Continent, which is strategically key for us. ASSETS” “We have also expanded in the Middle East, Asia Pacific and the US selectively. As one of the largest asset managers in the world, we continue to assess market opportunities that can help us grow further.” ETF FOCUS LGIM has primarily been known as an index fund provider – in this seg- ment, it is the fifth largest provider in the world, with over 30 years of experience. “When it comes to wholesale customers in Europe, however, our focus is on ETFs. With our Core ETFs we have created a new product range to take the next step in local mar- kets,” adds Königsmarck. Today investors expect more than PHILIPP GRAF VON KÖNIGSMARCK just low-cost from core equity ETFs. Index managers need to be more Philipp Graf von Königsmarck joined Legal & General Investment Management as head of active in mitigating the risks of Wholesale Distribution, Germany in May 2018. Previously, he was the head of Family Offices crowded indices and engaging with and Asset Managers at Fidelity, in Germany. companies for the long-term benefit After an early career in marketing and communications, he joined Fidelity in 2004 and moved of the market and investors. into a sales position within the IFA team, becoming head of IFA Sales within less than a year. For Königsmarck states: “With our the next eight years, Königsmarck led the sales team whose remit it was to turnaround sales per- Core Equity ETFs, we are avoiding formance, resulting in a positive trend. trading around the index adjustment In 2013, he set up and led a new business area at Fidelity, focused on multi-family and single days. Our new index design can family offices and independent wealth managers. help shield investors from the unpredictable behaviour of crowded to help deliver better outcomes for grow its assets and its client base trading. European investors. We believe that there. “Additionally, we are actively our approach and our product range Königsmarck says: “We con- engaging with companies to help can provide added value to our cli- stantly review how we can serve ensure strong governance that will ents compared to what’s currently our markets best, as well as where result in long-term performance – available in the market.” the needs and opportunities are. even in passive investments. In Germany and Italy, for example, “At the same time, we offer an KEY REGION we are looking to add resources to industry-leading thematic range of Europe is a key strategic region for our wholesale/retail business in our ETFs and develop new approaches LGIM and it wants to continue to existing branches in due course.” ■

www.investmenteurope.net InvestmentEurope June 2019 28

EVENT REPORT Q1 2019 employment 76.1% rate in the UK 5.4%

Brexit, disruption and broader industry changes were in focus when the 15th Alfi London Cocktail & Conference took place in early May. Jonathan Boyd reports Disruption on the line

It was not a fact lost on delegates to Alfi’s latest conference On Brexit, Mackel noted that some 31 out of 58 financial in London: when they were finalising the planning some services firms publicly committed to relocating business months ago, it was no doubt with expectations that they to Luxembourg so far are asset managers, but that more would be attending an ex-EU event. are likely to ensure passporting rights in the face of the It did not, of course, take long for the ‘B’ word to be Brexit threat – which he characterised as the “mother of all mentioned by attendant speakers, who outlined changes messes”. across a number of areas – not just in the main stage dis- Continuing the view from Luxembourg was Denise Voss, cussions, but also in the later breakout sessions covering chairman of Alfi. One of the key developments she noted ManCo operating models, new tax and structuring devel- was the continued formation of Reserved Alternative opments in private equity, hot investment areas in prop- Investment Funds (Raifs), with some 600 formed since the erty, and Luxembourg’s new sustainability finance toolkit. Luxembourg regime came into being in mid-2016. BREXIT & LUXEMBOURG UK VIEWS This being an event organised by the Association of the With the event taking place in the UK, it was to be Luxembourg Fund Industry, it led off with a review of expected that UK based financial professionals would Luxembourg’s place in the European fund ecosystem, par- have an opportunity to put forward their views, and Chris ticularly in terms of domiciliation of funds, but also with Cummings, CEO of the Investment Association duly a nod to possible outcomes depending on what happens obliged. with Brexit. He focused on the great need for the industry to evolve Nicolas Mackel, CEO, Luxembourg for Finance outlined to maintain relevance to society more broadly. He brack- key objectives currently held by those responsible for eted the changes necessary as the “3Ps and a T”: politics, evolving the finance sector in the Grand Duchy. These people, process and technology. include: reviewing the talent needs, including developing Another change facing the industry is to continue domestic talent, but also being able to recruit talent from making better use of technology, added Michael Drexler, elsewhere; continuing efforts to strengthen Luxembourg’s managing director, global head of Strategy and Business claim to be a fintech hub, with, for example, the govern- Transformation at JPMorgan Asset Management. ment moving to recognise blockchain based securities. For example, he discussed the implications of fractional

InvestmentEurope June 2019 www.investmenteurope.net 29 April unemployment EVENT REPORT 5.4% rate in Luxembourg

ownership of shares being made possible through block- And the industry needs to better understand the differ- chain. This could, he suggested, make possible “a fund for ence between, say, impact investing and other forms of one”. SRI or ESG driven investments. Broderick said there was And, while it remains to be seen if machines can com- evidence to suggest that impact investors tended to greater pletely replace portfolio managers, in the meantime the engagement and persistence of engagement. The panellists industry is busy evolving cooperation between machines suggested generally that in coming years ESG will not be and people. Another key fintech question was summed seen as an outlier, but will be a given. up as depending on “whether Alexa becomes financially For asset managers looking ahead to business growth literate, should regulators allow it, and should Alexa’s opportunities, there are certain geographies to keep in owners wish it so.” (Alexa is, of course, the virtual assistant mind too. Europe, China and the Americas are witnessing offered by Amazon, usually in the form of a standalone the link between global asset managers to local markets speaker, and which has contributed to a sharp rise in the through defined contribution. Also, the shift away from proportion of online searches being done by voice rather ‘product’ to ‘solution’ is expected to continue. ■ than typing into a box on screen.) Moving on to the first key panel of the day, the event brought together asset management CEOs to consider the COCKTAILS industry’s response to disruptions caused by technology As per the name of this event, the first day of the con- and politics, and to what extent it is actually responding ference actually constituted an evening cocktail recep- through transformation. tion, which took place on 7 May Taking part in this discussion were Peter Horrell, man- aging director, Fidelity International, James Broderick, former head of UBS Wealth Management UK & Jersey and now an impacting investing advocate, Peter Harrison, group chief executive, Schroders, and Jonathan Wilcocks, global head of Distribution at M&G Investments. Among the challenges noted were the fact that wealth tends to be concentrated in the upper age brackets – Wil- cocks noted that some 87% of UK wealth is held by those aged 45 and older – which means asset managers need to respond to certain needs of younger investors today, but which could change significantly in future, for example, as they inherit wealth, or as the so-called sharing economy evolves and influences their view of asset managers. Another challenge is in data. Harrison said changes to auditing are required to get better data on sustainability of business models, as part of the asset management industry engaging even more sustainably. www.investmenteurope.net InvestmentEurope June 2019 30 TRAVEL DIARY Increase in number of 0.8% employed persons in Switzerland in Q1 2019

Visiting the community InvestmentEurope’s colleagues have been travelling the region in the past couple of months, visiting fund selectors as well as sell side professionals, as Jonathan Boyd outlines

April and May saw InvestmentEurope •Javier Climent – investment staff head off on research trips to adviser – EFE & ENE; Norway, Spain and Switxerland, •Juan Miguel Damia – director – to inform about upcoming events, Tressis; but also to gain insight into key •Philip Kalus – managing partner – investment topics of ongoing interest Accelerando Intelligence; to locally based fund selectors. •Christian Durr – fund selector – Etica Patrimonio; and •Lorenzo Serratosa – CEO – and Daniel Pérez – fund selector – Kau Oslo Markets eafi. Jonathan Boyd, editorial director and Patrik Engström, head of Fund Selector Relations, Nordic visited the Norwegian capital on 29 April. Zurich Meetings included: Ridhima Sharma, DACH correspon- •Richard Litsén – investment dent and Alexandra Laue, Fund manager – External Managers – Selector relationship manager, DACH Ferd; visited Zurich on 9 May. •Morten Christensen – director Meetings include: Investment Management – Aars; •Dr. Julius Agnesens – head of and Investment Solutions – Finreon AG; •Åge Saetrevik – chief investment •Kuno Schmid – portfolio manager officer – Gjensidige. Fund of Funds – Falcon Private Bank; •Eckhard Zündorf – PF manager – Opernhaus Zürich; and •Jörg Dobler – head of PM, head Valencia of AM, managing partner and Ángela Oroz, Fund Selector relation- member of executive board – ship executive, Iberia visited Valencia Marcuard Family Office. on 7-8 May. Meetings included: Madrid Upcoming trips Ángela Oroz, Fund Selector relation- ship executive, Iberia visited Madrid InvestmentEurope’s events programme for 2019 can be on 13-14 May viewed on p34 of this issue. Meetings include: Staff will be visiting the cities mentioned ahead •Beatriz Guerra – fund analyst – of these events to highlight to locally based fund Alantra; selectors the latest information on particpating •Ismael García – investments sponsor groups, speakers and topics. director – Mapfre; and A full calendar of events for 2019 is available •Gema Martínez-Delgado Cordente at: https://opendoormedia.turtl.co/story/ – responsible for advisory and iecalendar2019. portfolio management – GVC Gaesco. ■

InvestmentEurope June 2019 www.investmenteurope.net 31 Increase in net interest TRAVEL DIARY NOK 2.4bn income in Norwegian Banks in Q1 2019 YoY

Have copy, will travel

As InvestmentEurope’s visit to fund selectors and other financial professionals continues across the region, so too does the photo album of the magazine in situ. Here are some examples of recent trips to (clockwise from top right) Zurich, Geneva and Oslo. We would be happy to publish your pictures of the magazine visiting other places. Send your photographs to: [email protected].

www.investmenteurope.net InvestmentEurope June 2019 32 EVENTS

Approaching events June will see InvestmentEurope’s events programme hit Rome and Zurich for key Summits

NEXT EVENTS income markets globally, the role of facing fund selectors seeking to convertible bonds, and the relationship broaden and deepen their knowledge between ESG scores and performance. around practical responses to inte- Overseeing the panel on the second grating ESG. day of the event will be moderator This event will feature a mix of Vittorio Eboli, financial journalist at plenary speaker sessions and panel Sky TG24. Networking for delegates discussions delving into both buy and and sponsors alike is provided via sell side views. Participating speakers coffee breaks, lunches and dinner. will also address use of AI and data sci- ROME, 6-7 JUNE To register your interest in ences in ESG approaches, how being a InvestmentEurope will host its first attending, contact Luisa de Vita at signatory to UN PRI flows into actual event in Rome on 6-7 June at the [email protected] or SRI integration, key trends driving ESG, Aldrovandi Villa Borghese. telephone +44 (0) 20 3727 9932. the role of ESG in Japan, and the future Offering two days of boardroom of sustainable investments. sessions, networking, a panel discus- Specialists will come from Forum sion and wine tasting for delegates, Nachhaltige Geldanlagen, Morning- this event is targeting some 40 fund star, PwC, RepRisk and TruValue Labs. selectors based in Italy, with a bias to Asset management groups represented those active in the institutional space. include Acadian Asset Management, Groups taking part include 1167 BLI – Banque de Luxembourg, Funds Capital, Carmignac, Edmond de Roths- for Good, Invesco and Sparx Group. child Asset Management, La Financière Networking breaks, including a de L’Echiquier, Legal & General Invest- ZURICH, 13-14 JUNE networking dinner, form part of the ment Management, Principal Global programme. Investors, RWC Partners, Sycomore Taking place over two days at The To register your interest, contact AM and UBS Asset Management. Col- Dolder Grand, the InvestmentEurope Vanessa Orlarey at vanessa.orlarey@ lectively they will address areas such Pan-European ESG Summit Zurich odmpublishing.com or telephone as how to weather volatility in fixed 2019 aims to tackle key questions +44 (0) 74 7393 4144.

TAKE PART IN THE DISCUSSION Delegates to the Italian and Pan-European ESG Summits are encouraged to connect ahead of the events by tweeting using the hashtag #IESUMMIT. InvestmentEurope’s website offers additional opportunity to learn more about our upcoming events: https://events.investmenteurope.net. There are also LinkedIn pages dedicated to events and other news. Visit https://www.linkedin. com/showcase/6403794 for further information.

InvestmentEurope June 2019 www.investmenteurope.net 33 EVENTS

LOOKING AHEAD

HELSINKI, 24 SEPTEMBER The second half of the year will see InvestmentEurope host a Roundtable event in Finland’s capital Helsinki for locally based fund selectors. Taking place at the Hotel Kämp on the morning of 24 September, the event will include presentations from groups including Legg Mason Global Asset Management, Majedie Asset Manage- ment and Pictet Asset Management. Fund selectors interested in regis- tering should contact Patrik Engström at patrik.engstrom@odmpublishing. com or telephone +44 (0) 20 3727 9940.

Further Roundtables taking place in September and October will visit the capital cities of Iceland and Portugal, on 25 September and 8 October respec- tively, bringing insight from asset man- agers to locally based fund selectors. Germany’s financial capital and seat of the European Central Bank, Frank- furt will also host a Roundtable on 16 October. www.investmenteurope.net InvestmentEurope June 2019 34 EVENTS 5

EVENTS CALENDAR 20162019 6-7 June Rome Italian Summit InvestmentEurope’s inaugural Summit event in the Italian capital will target the local institutional market as well as wholesale financial professionals with a programme of boardrooms/workshops and panel discussions

13-14 June Zurich Pan-European ESG Summit Building on last year’s successful ESG event, InvestmentEurope is offering a content-led event with a programme that speaks to the myriad of issues and challenges facing fund buyers on this theme

24 September Helsinki Roundtable 25 September Reykjavik Roundtable 2 October Milan Women In Investment Awards After the successful launch of the Women in Investment Awards by our sister title, Investment Week, InvestmentEurope is delighted to launch the Women in Investment Awards Italy taking place on 2 October 2019

8 October Lisbon Roundtable 16 October Frankfurt Roundtable 24 October Madrid Roundtable 30 October Copenhagen Roundtable 14 November Zurich Pensionskassenforum

InvestmentEurope’s calendar of events for 2019 is available in an electronic format here: https://opendoormedia.turtl.co/story/iecalendar2019. Remember to check the website for regular updates at www.investmenteurope.net/events. For further information on sponsoring these events, please contact Eliot Morton at: [email protected].

InvestmentEurope June 2019 www.investmenteurope.net 35

Panelists joining SharingAlpha to 5 discuss digitalisation at FundForum International in Copenhagen

CEO and co-founder of SharingAlpha Oren Kaplan looks forward to the upcoming FundForum International conference where he will host a panel looking questions of digital fund selection Discussing digital fund selection

With the latest edition of the Fund- Forum International conference HIGHLY RATED FUNDS upcoming in Copenhagen 25-27 Ratings are based on the preferences expressed by users of its platform, June, Oren Kaplan, co-founder and on the factors of people, price and portfolio, and are rated on a maximum CEO of SharingAlpha will be taking score of ‘5’. Start your own rating. Visit www.sharingalpha.com for more part in a panel looking into questions information. of digital fund selection. This panel will see five members of the SharingAlpha community come Fund name Domicile Average Raters Move together to discuss digitalisation in rating from prev the fund selection space. LFPartners ASG Dynamic Inc Fd Luxembourg 5 5 u They include, besides Kaplan him- Liontrust European Income Fund United Kingdom 5 8 u self, who is moderating: Ilan Sadoun, Prosperity Prosperity Cub Cayman Islands 4.86 7 u co-founder and chairman Caspa Sextant PEA France 4.85 14 u Family Office & Wealth Management; Magallanes European Equity FI Spain 4.83 22 u Madalena Antolin Teixeira, senior azValor Iberia FI Spain 4.83 6 s portfolio manager, ASK Wealth Man- Russian Prosperity Fund Cayman Islands 4.83 8 t agement; Bart Van Der Ven, manager Vanguard US Opportunities Fund Ireland 4.82 6 u and fund selector, Accuro Wealth Schroder GAIA Two Sigma Divsfd Luxembourg 4.82 19 s Advisors; Adam Jordan, director of Dodge & Cox Intl Stock Fund United States 4.81 6 New Investment Research & Management, Paul R. Reid Financial Group; and As at 30 April 2019 Source www.SharingAlpha.com Brad Prosper, investment analyst, Xperia Investment Advisors. Questions set to be addressed by they rated – do you believe fund Instead, it was in the subsequent the panel include: selectors should be able to exhibit five where the data pointed to • Nowadays almost all the services their track record using such digital advances by the azValor Iberia FI and and products you consume are tools? the Schroder GAIA Two Sigma Diver- rated on user-generated rating • In order to improve your roles as sified funds into the top 10. platforms – with the exception professional fund selectors, what The Russian Prosperity fund of investment funds. With over additional digital tools have you slipped down in the rankings, while a 100,000 funds to choose from how adopted and which tools would you new entrant took its place in the form do you see the role of digital rating be interested in? of the Dodge & Cox International platform such as SharingAlpha? Stock fund – as rated on the factors of • As you know, in order to motivate RATINGS CHANGES people, price and portfolio. professional fund buyers to share In the most recent monthly update of The scores represent the ‘wisdom their opinions SharingAlpha came the list of funds ranked most highly of the crowd’ as they are based on up with the idea to rank the raters by users of SharingAlpha, there was qualitatively derived expectations of based on how their ratings matched little movement in the top five ranked fund selectors rather than backward the actual performance of the funds funds. looking quantitative filtering. ■ www.investmenteurope.net InvestmentEurope June 2019 36 EDITORIAL BOARD

InvestmentEurope’s Editorial Board members give their views on IPO valuations, sustainability objectives and the US/China trade war Ideas generation

Would you like to join Investment- Europe’s Editorial Board and share your views as a professional EMMANUEL FERRY BERNARD AYBRAN JON BECKETT FILIPPO STEFANINI fund buyer/ investor? Chief Investment Officer CIO Multi Management Author of New Fund Order Head of Multimanager Invest- For further Banque Pâris Bertrand Invesco London ments & Unit Linked details, contact: Geneva Paris http://jbbeckett.simpl.com/ Eurizon Capital SGR jonathan. www.parisbertrand.com www.invesco.com get_the_book.html Milan boyd@ www.eurizoncapital.com odmpublishing. What do recent IPO What do recent IPO What are you doing com valuations suggest valuations suggest to implement When does the US/ about market about market sustainability China trade war valuations generally? valuations generally? objectives internally become a significant With over $15bn raised, The valuations prevailing at your organisation? problem for you and/ May is the biggest month for at the recent high profiles What I am advising my or your clients? IPO fundraising since 2014, US IPOs are shedding some boards and committees A protracted trade dispute when Alibaba raised $25bn. light on the otherwise more is to consider adopting a is a downside risk on global The percentage of com- secretive private equity more progressive agenda. growth, particularly with panies with negative earn- market. I observe that asset valu- respect to tech companies or ings in the year prior to IPO The massive flows of ation and fund selection, manufacturers dealing with was 81% at the end of 2018, money into illiquid assets appointment and moni- higher input prices or dis- a level similar to the 2000 in general, and private toring still needs to evolve. rupted supply chains. peak. Needless to say, this is equity in particular, are The adoption of UN China’s economy is an alarming signal against meaningfully distorting Principles of Responsible showing signs of slowdown a backdrop of demanding valuations. This trend Investing is not static and it is using an expansion equity valuations, tight favouring illiquid assets but a dynamic standard. of its fiscal deficit to support credit spreads, inverted yield relies on the search for “Comply or explain” will the economy. curve and record low unem- investments displaying a become a hurdle that has The renminbi exchange ployment. low correlation to the major to be chased year-on-year. rate is depreciating and this The IPO pipeline is very public stock markets. There is an inertia within volatility can continue due large and there are ques- More broadly, investors our industry that can delay to the uncertainties; but the tions about how the markets worldwide keep avoiding, that change. Key issues central banks of both coun- will absorb it. Lower quality and selling public equity will naturally gravitate to tries can ease monetary pol- companies with high prices to the benefit of almost carbon extractors (oil, gas icies to provide support to are already struggling. Pri- any other asset class, and coal), emitters (power the economic cycle, if there vate valuations are probably whether classic bonds or grids) and users (autos/ is an escalation of retaliation too high in the tech sector more exotic, and illiquid, aerospace) but there a lot measures. and for the unicorn club: assets. This trend has been of issues belying, other pol- However, the US economy more than 300 globally ongoing for a while and the lutants to manage and con- continues to look strong (mainly US and Chinese), trigger that could stop it troversial stocks to engage. and the likely scenario is a with a total private valua- remains to be seen. prolonged global economic tion of more than $1trn expansion.

InvestmentEurope June 2019 www.investmenteurope.net 37 OBSERVATIONS

Diversity and the benefits of avoiding groupthink

There is much to consider around the topic of diversity. For dialogue and a good debate around these issues may help us the fund selector community, one of the facets is under- move forward. standing to what extent diversity can impact on groupthink, The Association of and if so what this may mean in terms of the composition of CULTURAL AND ETHNIC DIVERSITY Professional Fund fund selection teams in order to provide clients with ideas Similarly to the benefits of gender diversity, cultural and Investors (APFI) is a that may be beyond their normal comfort zone, but which ethnic diversity is likely to contribute towards better registered Swiss non- profit, all-volunteer could actually be beneficial. insights, analysis, debate, decision making and awareness of organisation exclusively This is not a practice in theory. The industry likes to claim alternative approaches to solving problems and addressing composed of and led it is a ‘people business’: if so it needs to be able to welcome challenges. In a global world, we live with different cultures, by professional fund investors. Founded in those without an existing network. And the industry needs religions and traditions around us and isolationism will be 2011, it serves members to reflect diversity in people and backgrounds in order to an obstacle to success. The challenges of migration are often on six continents. ensure that analysis and selection remain mainstream in exaggerated and not always without political or populist future. Countries seeking to encourage more interest in ideas influencing the opinion. For more information visit www. long term savings run the risk of turning people off if they profundinvestors.com. perceive the industry as not reflecting the diverse nature of GENERATIONAL DIVERSITY savers themselves. Diversity can be linked to building trust in Younger generations sometimes express other values and the industry. preferences compared to the older generations. It is impor- Members of the Leadership Team and others at the Asso- tant to bring these views together. In an organisation, this ciation of Professional Fund Investors have collectively pro- would mean a real opportunity given to the junior members vided insight into the many meanings of diversity that the of teams and working groups to voice their opinions. There is industry should be considering. Here is a collection of views. also a challenge at the other end of the age spectrum, where the 50+ generation is no longer seen as a positive contrib- COGNITIVE DIVERSITY uting element. Older people may not have top notch skills in Dissonance lies at the very heart of the human condition. the latest technologies, but they have experience, perspec- In psychology it is defined as to have inconsistent thoughts, tive and good judgment which is equally valuable. beliefs, or attitudes, especially those relating to behav- ioural decisions and attitudes to change. Human biases are DIVERSITY IN PERSONALITY numerous and can arise either in isolation or through group- In a professional environment, we are a community of dif- think. ferent personalities: some outgoing, some shy; some talkers, Recognise then that dissonance is bad. It is a by-product some listeners; some extroverts, some introverts; some of groupthink, as much as of individual biases. Recall that loud, some quiet. Some fast, some slow. And all the steps in ‘groupthink’ is the negative decision process linked to peer between. Recognise everyone’s unique personality, appre- pressure, herding and the opposite of synergy. ciate the variety and enjoy. Diversity is only worthwhile if the diversity of thought is supported by senior management – anyone thinking ‘out of OTHER TYPES OF DIVERSITY the box’ should be encouraged so groupthink can be avoided Diversity in portfolio construction. In the investment com- munities around the world, we have always seen a signifi- GENDER DIVERSITY cant element of ‘home bias’. Investors have a big relative A global issue and relevant everywhere in the world. Some overweight in their own markets relative to a balanced, countries, including the Nordic region, have made significant global and diversified (exposure wise) opportunity set. progress – but we are not there yet. In the corporate world, Americans have it, the Chinese have it, the Japanese have we are beginning to see more female board members, but it and the list goes on, including your country. Diversifica- in many industries, top management is male dominated. tion was famously described by Harry Markowitz as “the This is very much obvious in the financial services industry, only free lunch in finance”. Correlations may have increased including asset management. It will be difficult to recruit somewhat over time, but it still holds true. competent and experienced female board members if the Diversity of employees can help the asset management executive layers of the organisation tend to be all men. industry pursue the responsibility it has to drive change in Female portfolio managers a few and far between, why? A corporate ESG and sustainability policies. ■ www.investmenteurope.net InvestmentEurope June 2019 38 DATA SWITZERLAND

SWITZERLAND ALPHA 3-YEAR SWITZERLAND BETA 3-YEAR A focus on palladium Fund Alpha over 36 months v. sector Fund Beta over 36 months v. sector With global car sales over the past ZKB Palladium ETF AA CHF in EU 34.28 ComStage Commerzbank Bund-Future Double Short TR -2.54 three years being on average much Invesco Physical Palladium in EU 33.78 Lyxor UCITS ETF DAILY SHORTDAX X2 C EUR in EU -2.09 higher than they were in the period UBS ETF (CH) Palladium (USD) A Dis in EU 33.75 Amundi ETF Short Govt Bd EuroMTS Broad Inv Grade 10-15 -2.01 2000-2015, it is perhaps no surprise GAM Precious Metals Physical Palladium A USD in EU 33.44 Lyxor UCITS ETF Daily Double Short SMI C CHF in EU -1.93 that there is interest in palladium. Xtrackers Physical Palladium ETC USD in EU 33.41 Odey Odyssey R USD in EU -1.67 H2O Allegro H R C USD in EU 26.46 Xtrackers II Eurozone Government Bond Short Daily Swap -1.33 Two countries, Russia and South Granahan US Focused Growth A Acc USD in EU 24.40 Amundi ETF Short Govt Bond EuroMTS Broad Inv Grade -1.33 Africa account for some 80% of Invesco STOXX Europe 600 Optimised Basic Resources in EU 23.99 ComStage Commerzbank Bund-Future Short TR UCITS ETF -1.27 output. And the element is used in Lyxor STOXX Europe 600 Basic Res UCITS ETF EUR in EU 21.68 Xtrackers EURO Stoxx 50 Short Dly Swap UCITS ETF 1C EUR -1.07 catalytic converters. Meanwhile, geo- ComStage STOXX Eur 600 Basic Res NR UCITS ETF TR in EU 21.67 ComStage EURO STOXX 50 Daily Short GR UCITS ETF in EU -1.06 political concerns have been pushing up prices of a number of commodi- SWITZERLAND CROWN + PERFORMANCE SWITZERLAND PERF/SIZE 3-YEAR ties on supply shock fears. Thus it Fund Crown rating 36 months Fund Cumulative Size (€m) seems investors in funds available in Granahan US Focused Growth A Acc USD in EU x5 194.34 Granahan US Focused Growth A Acc 194.34 190.9 the Swiss market that are focused on JPM US Technology A Dis USD TR in EU x5 130.76 JPM US Technology A Dis USD TR in EU 130.76 1009.3 this commodity have done well over Polar Capital Global Technology USD in EU x5 119.79 UBS ETF (CH) Palladium (USD) A Dis in EU 130.15 9.2 Janus Henderson Global Technology A Acc USD in EU x5 101.22 Invesco Physical Palladium in EU 129.90 3.2 the period covered by the data . Inter- Morg Stnly US Growth I USD in EU x5 99.95 GAM Precious Metals Physical Pd A 128.49 28.1 estingly, a number of the palladium Fidelity Global Technology A EUR in EU x5 90.82 ZKB Palladium ETF AA CHF in EU 127.81 107.8 funds doing best are quite small, DNB Technology A EUR in EU x5 78.79 BlackRock GF World Tech A2 USD in EU 125.37 1362.4 suggesting that institutions have not DWS Invest Brazilian Equities NC in EU x5 77.32 Xtrackers Physical Palladium ETC USD in EU 125.03 7.4 been able to enjoy these returns. UBS (Lux) Eq Greater China (USD) (EUR) N Acc in EU x5 76.72 Polar Capital Global Technology USD in EU 119.79 3019.9 For those looking at fixed income, T. Rowe Price US Large Cap Growth Equity A USD in EU x5 76.29 Alger Sicav-Alger Small Cap Focus A US in EU 113.89 202.6 there has been a spread of asset classes providing the returns, SWITZERLAND SHARPE 3-YEAR SWITZERLAND INFORMATION RATIO 3-YEAR including convertibles, high yield, Fund Sharpe Fund Ratio rel vs sector Co-Cos and emerging market debt. PGranahan US Focused Growth A Acc USD in EU 1.78 Granahan US Focused Growth A Acc USD in EU 2.33 BlackRock GF World Technology A2 USD in EU 1.50 Raiffeisen Swiss Money A TR in EU 2.15 However, for those looking to Polar Capital Global Technology USD in EU 1.44 Vontobel Emerging Markets Bond I in EU 1.96 Sharpe ratios, the performance has JPM US Technology A Dis USD TR in EU 1.43 CS (Lux) High Yield USD Bond B USD in EU 1.91 been much more focused, being dom- Janus Henderson Global Technology A Acc USD in EU 1.30 Vontobel Swiss Money B in EU 1.85 inated by technology funds. Quite Fidelity Global Technology A EUR in EU 1.29 AXA World Funds US Dynamic High Yield Bonds A Cap 1.66 how these will fare going forward Franklin Technology A Acc USD in EU 1.26 BlackRock GF World Technology A2 USD in EU 1.59 amidst a trade war between China AXA Framlington Global Technology R Acc in EU 1.25 Polar Capital Global Technology USD in EU 1.55 DNB Technology A EUR in EU 1.24 iShares MSCI France UCITS ETF EUR in EU 1.53 and the US remains to be seen, espe- Morg Stnly Global Discovery A USD in EU 1.22 UBS (CH) Institutional Equities EM Global I-X TR in EU 1.52 cially for those who design products in the US but manufacture them in Source for all charts FE Analytics, bid-bid, to 17/5/2019. ■ SWITZERLAND PERF/VOLATILITY 3-YEAR All figures in % and are gross return rebased in euros China. Fund Cumulative Annualised GROSS RETURNS ON FUNDS FOR SALE IN SWITZERLAND REBASED IN EUROS ETFS Swiss Franc Daily Hedged Natural Gas i -32.39 36.93 Fidelity FAST Europe E Acc EUR in EU 17.23 33.98 Fund 1m 3m 6m 1yr 3yr 5yr 10yr LLB Precious Capital Global Mining & Metals 1 -9.72 32.73 Granahan US Focused Growth A Acc USD in EU 8.01 12.43 30.67 41.69 194.34 245.78 VanEck Vectors Junior Gold Miners UCITS -23.25 32.61 JPM US Technology A Dis USD TR in EU 0.73 8.95 26.12 24.03 130.76 220.29 582.42 Multipartner SICAV Konwave Gold Equity B -33.60 30.92 UBS ETF (CH) Palladium (USD) A Dis in EU -1.50 -6.48 15.30 41.59 130.15 97.06 Lyxor Lyxor MSCI Turkey UCITS ETF Acc -41.71 30.74 Invesco Physical Palladium in EU -1.51 -6.49 15.29 41.55 129.90 96.68 iShares MSCI Turkey UCITS ETF USD TR in EU -41.97 30.74 GAM Precious Metals Physical Palladium A USD in EU -1.52 -6.54 15.16 41.28 128.49 94.64 HSBC MSCI Turkey NAV GBP TR in EU -41.37 30.47 ZKB Palladium ETF AA CHF in EU -3.40 -6.17 15.44 43.02 127.81 95.57 582.93 Falcon Gold Equity UCITS A USD in EU -26.78 30.20 BlackRock GF World Technology A2 USD in EU 1.47 11.33 22.34 17.81 125.37 195.89 448.06 Bakersteel Electrum A2 in EU -14.24 30.05 Xtrackers Physical Palladium ETC USD in EU -4.29 -7.23 13.84 40.62 125.03 93.41 Polar Capital Global Technology USD in EU -0.08 7.40 18.43 16.33 119.79 207.00 583.06 SWITZERLAND FIXED INTEREST 3-YEAR Alger Sicav-Alger Small Cap Focus A US in EU 8.38 3.80 15.40 24.31 113.89 Fund 36 months cumulative Amundi ETF Leveraged MSCI USA Daily EUR in EU 0.70 9.54 15.50 24.94 109.27 252.93 Franklin Global Convertible Securities A Acc USD in EU 41.29 Franklin Technology A Acc USD in EU 0.00 8.19 22.77 19.76 105.03 190.70 548.15 Vontobel Emerging Markets Bond I in EU 37.51 AXA Framlington Global Technology R Acc in EU 0.36 9.02 20.82 17.47 104.19 188.77 555.92 BlueBay Financial Capital Bond R USD in EU 35.95 Janus Henderson Global Technology A Acc USD in EU -0.71 7.73 18.16 15.91 101.22 165.95 483.98 AXA World Funds US Dynamic High Yield Bonds A Cap 34.78 Morg Stnly US Growth I USD in EU 5.05 7.51 18.07 20.07 99.95 185.82 589.82 CS (Lux) High Yield USD Bond B USD in EU 31.66 Swisscanto (LU) Bond COCO AT USD in EU 31.23 BCM Vitruvius Greater China Equity B USD in EU -3.83 12.22 26.85 -3.05 98.76 116.66 Edmond de Rothschild EDRF Emerging Credit A USD in EU 30.82 H2O Allegro H R C USD in EU 1.46 9.53 25.81 26.50 98.44 Ashmore Emerging Markets Corporate Debt R USD TR in EU 29.96 UBS (Lux) Investment SICAV China A Opportunity P Acc in EU -7.88 14.66 28.50 3.84 98.22 253.21 T. Rowe Price Series II SICAV Credit Opportunities Q in EU 28.28 iShares S&P 500 IT Sector UCITS ETF USD in EU -1.62 9.64 13.61 16.37 97.92 Rivertree Essential Portfolio Selection Gbl Em F Cap 27.84 GAM Star Technology Acc USD in EU 1.04 4.55 14.73 11.13 95.99 121.19

InvestmentEurope June 2019 www.investmenteurope.net 39 DATA PERFORMANCE

World 50 funds There may be some irony in marijuana funds being categorised in the healthcare sector, but the highs being reached are certainly no joke for investors. Meanwhile, select commodities and property are other sectors doing well, according to the data

NAME LIPPER % GR SHARPE RATIO FUND FUND DOMICILE GLOBAL 1YR 30/04/18 1YR 30/04/18 VALUE MGT SECTOR TO 30/04/19 TO 30/04/19 (€M) CO

1. ETFS 3x Daily Short Coffee Unclassified 138.83 0.39 0.51 ETFS Commodities Sec Ltd Jer 2. Boost Palladium 2x Leverage Daily Unclassified 114.74 0.39 2.08 Boost Mgmnt (Jer) Ltd Ire 3. iPath Exchange Traded Notes Gbl Carbon;A Commodity Energy 113.51 0.36 10.62 Barclays Bank PLC USA 4. Purpose Marijuana Opportunities Series A Equity Sector Healthcare 104.41 0.39 10.86 Purpose Investments Inc Can 5. Leverage Shares 2X Microsoft ETP Unclassified 95.36 0.4 0.75 Leverage Shares Ire 6. Evolve Marijuana ETF Equity Sector Healthcare 86.08 0.34 9.24 Evolve Funds Grp Can 7. ETFS Carbon EUR Unclassified 85.41 0.35 19.29 ETFS Mgt Co (Jy) Ltd Jer 8. EII Global Sustainable Property Fund Equity Global 77.32 0.47 0.04 Warburg Invest KAGmbH Ger 9. Heritage Alternative Fund Alternative Multi Strategies 76.41 0.43 0.13 Scarabaeus Wlth Mgmt AG Lie 10. Leverage Shares 2X Salesforce.com ETP Unclassified 73.16 0.25 0.37 Leverage Shares Ire 11. Concorde Max USD SN ba Mixed Asset USD Flex - Global 71.22 0.42 1.21 Hold Alapkezelo Hun 12. Direxion Semiconductor Bull 3X Shares Unclassified 68.09 0.16 545.38 Rafferty Asset Management LLC USA 13. Leverage Shares 2X VISA ETP Unclassified 67.06 0.32 0.34 Leverage Shares Ire 14. Finext RealEstateOpps Budapest C HUF Dis Alternative Other 64.33 0.2 12.64 FINEXT Befektetesi Lux 15. AfricaPalladium ETF Commodity Precious Metals 62.94 0.51 185.37 Africa ETF RSA 16. VelocityShares Dly 4X Long $ vs € Ind ETN Unclassified 60.86 0.55 2.86 Citigroup Global Markets Inc USA 17. Alpha Asset Mighty Prof Invt Prv ReEst 15 Undisclosed 60.07 0.36 1.08 Alpha AMC RoK 18. Direxion Daily Technology Bull 3x Shares Unclassified 59.47 0.17 725.17 Rafferty Asset Management LLC USA 19. Boost Long Usd Short Eur 5x Daily ETP Unclassified 59.43 0.63 0.86 Boost Mgmnt (Jer) Ltd Ire 20. DB Agriculture Double Short ETN Commodity Other 57.81 0.41 0.18 Deutsche Bank AG (London) USA 21. Direxion Daily MSCI Real Estate Bull 3x Sh Unclassified 57.35 0.2 41.05 Rafferty Asset Management LLC USA 22. ETFS 3x Daily Short Wheat Unclassified 55.8 0.19 0.36 ETFS Commodities Sec Ltd Jer 23. Direxion Daily Utilities Bull 3X Shares Unclassified 55.71 0.4 6.34 Rafferty Asset Management LLC USA 24. db Physical Rhodium ETC USD Commodity Precious Metals 54.52 0.47 39.23 Deutsche Bank AG (London) Jer 25. ZKB Palladium ETF AA CHF Commodity Precious Metals 54.05 0.49 111.84 Swisscanto Fonds Swi 26. Qinvest Edgewood Sharia’a Fund Equity US 53.86 0.35 14.61 QWM Limited Cay 27. AfricaRhodium ETF Commodity Precious Metals 53.63 0.38 24.34 Africa ETF RSA 28. Granahan US Focused Growth A USD Acc Equity US Sm&Mid Cap 52.87 0.3 23.03 Granahan Investment Management Ire 29. Direxion Daily Natural Gas Related Bear 3X SharesAlternative Other 52.65 0.11 3.39 Rafferty Asset Management LLC USA 30. UBS ETF (CH) - Palladium (USD) A-dis Commodity Precious Metals 52.38 0.39 9.12 UBS Fund Mgt (CH) AG Swi 31. Invesco Physical Palladium ETC Commodity Precious Metals 52.33 0.38 3.15 Source Inv Mgt Ltd Ire 32. iShares Physical Palladium ETC Commodity Precious Metals 52.31 0.38 5.61 BlackRock Adv (UK) Ire 33. db Physical Palladium ETC Commodity Precious Metals 52.23 0.38 7.41 Deutsche Bank AG (London) Jer 34. ETFS Physical Palladium AUD Unclassified 52.18 0.48 1.27 ETFS Metal Securities Aus 35. ETFS Physical Palladium Unclassified 52.17 0.38 107.65 ETFS Fund Mngt Comp Ltd Jer 36. Fidelity Advisor Series Growth Opps Fund Equity US 52.16 0.48 649.33 Fidelity Management & Research Co USA 37. GAM Precious Metals - Physical Pd-USD A Commodity Precious Metals 52.03 0.38 9.04 GAM Inv Man Switz AG Swi 38. Aberdeen Standard Physical Pd Shares ETF Commodity Precious Metals 52.01 0.39 193.01 ETF Securities USA LLC USA 39. ETFS Short Coffee Unclassified 51.87 0.42 0.98 ETFS Commodities Sec Ltd Jer 40. ProShares UltraPro QQQ Unclassified 49.74 0.15 3961.73 ProShare Advisors LLC USA 41. Boost NASDAQ 100® 3x Leverage Daily Unclassified 49.53 0.14 30.33 Boost Mgmnt (Jer) Ltd Ire 42. HSBC Saudi Financial Institutions Eq Fund Equity Sector Financials 48.88 0.47 28.87 HSBC Saudi Arabia ltd KSA 43. Optimum Hotel Specialist Private Plcmnt 1 Undisclosed 48.8 0.33 1.24 Lime Asset RoK 44. Jacob Micro Cap Growth Fund;Instl Equity US Sm&Mid Cap 48.3 0.31 8.57 Jacob Asset Mgmnt of New York USA 45. ProShares Ultra Technology Unclassified 48.29 0.2 327.3 ProShare Advisors LLC USA 46. First Trust AlphaDEX US Tech Sec Idx ETF Equity Sector IT 47.85 0.48 26.73 FT Portfolios Can Co. Can 47. Fidelity Advisor Growth Opps Fund;M Equity US 47.68 0.44 1783.62 Fidelity Management & Research Co USA 48. Alawwal Invest Saudi Financial Equity Equity Sector Financials 47.44 0.54 11.72 Alawwal Invest SAU Ltd L KSA 49. Aescap2.0 - Investors Equity Sector Healthcare 46.77 0.39 122.86 Privium Fund Mgt B.V. Neth 50. ARK Web x.0 ETF Equity Sector IT 46.36 0.41 452.13 ARK Investment Management LLC USA The ranking of these 50 top performing funds are based on total return percentage growth over one year, in local currency terms, giving the purest measure of fund performance without being impacted by exchange rate fluctuations. The funds are included regardless of domicile, and are drawn from the Lipper Global universe, covering 80 countries. The % figures are based on bid-bid, income reinvested. www.investmenteurope.net InvestmentEurope June 2019 40 REVIEW

Joshua Harmon’s US college drama exposes the contradictions and hypocrisies of America’s Left in relation to race, diversity and education. Eugenia Jiménez watched the play Admissions: a satirical comedy on the double standards of US white liberals

Sherri (Alex Kingston) is the head of admissions at an And this is when Sherri’s hypocrisy comes to light, as US elite private school where her husband Bill (Andrew she cannot accept her son will be the one self-sacrificing Woodall) is the principal, and which their son Charlie and desperately attempts to ensure he keeps his place at (Ben Edelman) attends. the top table. Sherri is very proud to have raised the percentage of “students of colour” (African-Americans and others) to THE CRITICAL QUESTION 20%. She sees herself – and is portrayed – as a tireless The play’s real intent is to question a system that gives a Admissions fighter for diversity, inclusion, and equally of opportu- head start to those who go to prestigious universities, who, is written by nity to a point that touches the ridiculous. At one point despite representing a small percentage of society, domi- Joshua Harmon. It is running at in the play, Sherri is accused of favouring “coloured stu- nate key professions. multiple theatres dents”, to which she ridiculously grumbles: “Some of my “Are people happy to praise diversity until the point it across England best friends are white.” affects them?” is a critical question to put. through to the third week of June The crisis starts when Charlie fails to get a place at Yale It is also the criticism of the double standards of many, University, while his mixed race best who do not preach by example, but London Trafalgar friend does, despite being apparently feel entitled to give moral lessons and Studios less academically able. do the opposite of what they stand 28 Feb - 25 May “DESPITE A CERTAIN 2019 Charlie, a 17-year-old who has seen for. The topic of an elitist college and the dream of his life truncated, starts LACK OF REALISM its relationship with self-perpetuating Richmond Theatre hysterically ranting against all forms stratification of society, particularly 27 May - 1 June AND DEPTH, 2019 of positive discrimination, coming in the US, is an of-the-moment topic to affirm that his friend had been ADMISSIONS RAISES to address in the wake of the college Cambridge Arts accepted for “ticking more boxes”. admissions scandal that has reached Theatre SOME POWERFUL 3 June - 8 June The rant – an ordeal for the ears into places such as Hollywood. The 2019 of spectators – arouses the shame ISSUES” play also touches on whether the and the anger of his parents, in par- battle for diversity is about things Malvern Theatres 10 June - 15 June ticular that of his dad, who furiously looking different, or being different. 2019 criticises his behaviour of “spoilt and Undoubtedly, all these are valid privileged child” in a tone that lacks any sort of empathy points to make but, unfortunately, the debate is somewhat The Lowry, Salford 17 June - 22 June and shows an excess of moral superiority and political poorly exposed. Admissions fails to come alive, it fails to 2019 correctness. bring the characters to life in a way that would connect If Bill’s absolute absence of empathy and under- with the audience. And this is possibly one of the reasons standing of his son’s suffering lacks truth, then Charlie’s why this play does not transmit profound truth. We may adaptation to the situation does even more so. He sud- recognise some of our own contradictions and hypocrisies denly takes a stand that involves self-sacrifice for the in the characters, but they just illustrate a point. greater good telling his mother he does not want to go Despite a certain lack of realism and depth, Admissions to Yale anymore, because real change can only be made raises some powerful issues in a satirical comedy that when someone privileged steps aside and leaves room to delights the public with some sharp and funny blows. It is someone else. worth watching. ■ “What good are your self-avowed principles when they cost you nothing?” he reproaches his parents. “What value your compassion and concern for others If you’d like to contribute to this page, please email less fortunate when you remain comfortably and safely the editor at [email protected] far away (and above) them?”

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