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Transcript of Katie gordon
Wealth Management SRI Portfolio Construction
Across the Asset Classes
Katie Gordon, SRI, Cazenove Capital Management 12/11/10
Contents
• Wealth Management Market – SRI issues
• SRI Today
• 3rd Party Fund Selection
• Impact Investment
• Sample SRI Portfolios
• Appendix
Wealth Management – the market
Wealth Management – the market
Clients• Individuals• Trustees• Family offices
Advisors• Fund Managers• Intermediaries: IFA’s, Consultants, Accountants, Lawyers, Trust Companies
Issues• Understanding SRI today• Sustainable theme vs integration• Performance myth• Philanthropy vs investment• Portfolio styles: pooled vs segregated; asset class vs entire portfolio
SRI Today
Expansion of Socially Responsible Investment (SRI)
Earlier Style
Ethical Restrictions
Social Environmental Ethical Research
ACTIVISM & ENGAGEMENT
Best Practice
Walk Away Push for Change
4th Revolution
Sustainable Themes
Companies of the future
Source: Cazenove Capital
Integrated SEE research - best practice fund management
ANGLO AMERICAN ORD USD0.50RIO TINTO ORD GBP0.10
BHP BILLITON ORD USD0.50XSTRATA USD0.50
LONMIN USD1.0ANTOFAGASTA ORD GBP0.05
Riskmetrics ratings 5: Environmental impact of the sector (5 is high, 1 is
low) AAA: environmental rating of the stock compared to
its sector (AAA is best - CCC is worst) * Social rating is BB or below
Applies to all Pan-European funds
Specialist SEE Research Ratings within
our valuation matrix
Analysts aware of SEE issues in stock
selection
Specialists within investment team
Integrated Engagement: Analysts raise strategic SEE issues with CEO’s + CFD’s. “Challenge corporate leaders”
Satellite SRI Team: Specialists discuss SEE issues with middle management. “Self interested circle”
Source: Cazenove Capital
Why do we incorporate this research?Companies with good environmental management can outperform
Source: RiskMetrics* EV21 rating is the RiskMetrics environmental rating** Above average is AAA-BBB; Below average is BB-CCC*** Top 11 & bottom 11 stocks only due to the size of the sector
Above average EV21 rating* Below average EV21 rating**Difference
Paper and Forestry SectorTop half outperforms by 59%
Paper and Forestry SectorTop half outperforms by 59% Chemicals Sector
Top Half Outperforms by 78%
Chemicals SectorTop Half Outperforms by 78%
Banks SectorTop Half Outperforms by 23%***
Banks SectorTop Half Outperforms by 23%*** Autos Sector
Top Half Outperforms by 100%
Autos SectorTop Half Outperforms by 100%
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
4
Jun
2005
Dec
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5
Jun
2006
Dec
200
6
Jun
2007
-30%0%
30%60%90%
120%150%180%210%
Tot
al r
etur
n
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
4
Jun
2005
Dec
200
5
Jun
2006
Dec
200
6
Jun
2007
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
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4
Jun
2005
Dec
200
5
Jun
2006
Dec
200
6
Jun
2007
-30%0%
30%60%90%
120%150%180%210%
Tot
al r
etur
n
-100%-50%
0%50%
100%150%200%
Dec
199
6
Jun
1997
Dec
199
7
Jun
1998
Dec
199
8
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
200
4
Jun
2005
Dec
200
5
Jun
2006
Tot
al r
etur
n
-100%-50%
0%50%
100%150%200%
Dec
199
6
Jun
1997
Dec
199
7
Jun
1998
Dec
199
8
Jun
1999
Dec
199
9
Jun
2000
Dec
200
0
Jun
2001
Dec
200
1
Jun
2002
Dec
200
2
Jun
2003
Dec
200
3
Jun
2004
Dec
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4
Jun
2005
Dec
200
5
Jun
2006
Tot
al r
etur
n-15%-10%
-5%0%5%
10%15%20%25%
Sep
200
6
Oct
200
6
Nov
200
6
Dec
200
6
Jan
2007
Feb
200
7
Mar
200
7
Apr
200
7
May
200
7
Jun
2007
Jul 2
007
Aug
200
7
Sep
200
7
Tot
al R
etur
n
-15%-10%
-5%0%5%
10%15%20%25%
Sep
200
6
Oct
200
6
Nov
200
6
Dec
200
6
Jan
2007
Feb
200
7
Mar
200
7
Apr
200
7
May
200
7
Jun
2007
Jul 2
007
Aug
200
7
Sep
200
7
Tot
al R
etur
n
-50%
0%50%
100%150%
200%250%
300%
Dec
199
6Ju
n 19
97D
ec 1
997
Jun
1998
Dec
199
8Ju
n 19
99D
ec 1
999
Jun
2000
Dec
200
0Ju
n 20
01D
ec 2
001
Jun
2002
Dec
200
2Ju
n 20
03D
ec 2
003
Jun
2004
Dec
200
4Ju
n 20
05D
ec 2
005
Jun
2006
Dec
200
6Ju
n 20
07
Tot
al r
etur
n
-50%
0%50%
100%150%
200%250%
300%
Dec
199
6Ju
n 19
97D
ec 1
997
Jun
1998
Dec
199
8Ju
n 19
99D
ec 1
999
Jun
2000
Dec
200
0Ju
n 20
01D
ec 2
001
Jun
2002
Dec
200
2Ju
n 20
03D
ec 2
003
Jun
2004
Dec
200
4Ju
n 20
05D
ec 2
005
Jun
2006
Dec
200
6Ju
n 20
07
Tot
al r
etur
n
Sustainable investment results – Lamprell Plc
• Provides construction and engineering services for oil and gas rigs and the offshore wind market.
• This year the company has announced USD 320.4 million of contract awards for the design, construction and delivery of self elevating and propelled offshore wind turbine installation vessels.
• Ideally positioned to take advantage of the expansion of the global offshore wind farm market and the constraint on liftboat capacity.
• This area represents a significant proportion of the bidding pipeline.
* Source: Datastream* Source: Datastream
150
170
190
210
230
250
270
290
310
330
350
Oct 09 Dec 09 Feb 10 Apr 10 Jun 10 Aug 10
Selecting the best
3rd party fund selection
SRI Third Party Fund Selection
• Process Summary;
Strategy & SRI
SRI responsibility
• Is the investment strategy consistent with our own? E.g. sustainable theme selection• Does the fund structure reflect the strategy?
• Is the SRI research integrated into the funds investment process?
• Quality
• Multi-manager responsibility – final sign off and buy list ownership
• Qualitative assessment of investment philosophy, process and people.• Quantitative analysis helps to test our expectations of fund behaviour in a range of
market conditions
• Is it “Best in Class?”
SRI funds are selected and monitored alongside our in house specialist multi-manager team
Where philanthropy meets investment
Impact Investment
Mission/Social Impact Investing
Investments that fit with clients values
• Some clients wish to set up charities, or give to charities, traditionally called philanthropy
• However increasingly clients are seeing the benefit of investing in Social Impact/Impact/Mission investments. These are hybrid investments that offer a social and financial dividend.
• These investments are made within the investment portfolio (as part of the relevant asset class, or as an additional asset class). The money can come from the portfolio, from grant money or charitable contributions.
• E.g. client wanting to support Poverty Alleviation - Investments should include microfinance and support of fair trade
• Liquidity is often an issue with impact investments.
Sample SRI Portfolios
Sample SRI Portfolio – PC pooled portfolio (medium risk)
Equities
Fixed Income
Hedge
Cash
2 CCM funds
3 SRI funds
2 Cleantech investment trust/unit trust
1 CCM fund
2 3rd party funds
1 SRI 3rd party fund
3rd party account
2 Hedge funds
1SRI hedge fund
Engagement and SEE Integration
Negative screening
Positive screening
SEE integration
Positive and negative screening
2 Property funds1 SRI property fund Social/eco housingProperty
5%
10%
25%
20%
40%
SEE integration
Asset Class Investment Solution
SRI Solution
Engagement and screening
For illustrative purposes
Sample SRI Portfolio – PC segregated (medium risk)
Cash
Alternatives
Fixed Income
Equities
Global 3rd party funds
Individual stocks
Specialist SRI funds(investment trusts/unit trusts) e.g. Cleantech
Gilts (inc. Index Linked)
Individual corp. bonds
2 Hedge funds
1 SRI hedge fund or FofF
Microfinance
3rd party SRI deposit account
Asset Class Investment Solution
SRI Solution
Positive and negative screening,
Engagement
SEE integration, negative screening
SEE integration
Negative screening
Social/eco housing
Negative and positive screening
Property1 Property fund
1 SRI Property fund
5%
10%
20%
25%
10%
30%
Positive & negative screening
SEE integration
Sustainable themes and
positive screening
For illustrative purposes
Sample SRI Portfolio – Social impact: poverty alleviation
UK segregated
Global 3rd party ethical funds
Global 3rd party sustainable & ethical funds & ETF’s
Investment solution
3rd party ethical funds
Hedge 5%
Social impact 20%
SRI style
SEE integration, engagement, sustainable themes & negative screening
Positive & negative screening, engagement, SEE integration
Sustainable themes (e.g. water, energy and climate change adaptation/mitigation)
Positive and negative screening, as well as social impact bonds
SEE integration & engagement/sustainability, negative screening
Social returns
Equities UK 20%Global 30%
Fixed income
Alternatives inc.hedge, & social impact
For illustrative purposes
50%
25%
25%
Appendix
History and development of SRI
Negative Screening
Green Movement
Positive Screening
Engagement & Activism
Integrated Analysis
Sustainable Finance
1920s: Methodist Church align investments with its values by excluding alcohol and gaming
1980s: Anti-apartheid movement excludes investments in S Africa
1984: The first UK ethical funds is launched, followed later by European ethical fundlaunches
1992: Rio de Janeiro – UN conference on Development and the Environment
2000: Pension Act requires SRI disclosure in UK
Largest Dutch pension funds draft SRI policies following Trade Union pressure
UN Millennium Development Goals launched
2001: Social and environmental reporting by companies mandatory in France
Association of British Insurers (ABI) issues SRI disclosure Guidelines
German private pension fund regulation requiring SEE statement
2002: Rio +10 - UN conference on Development and the Environment (Johannesburg)
2003: Dutch insurance companies create Code of Conduct including social responsibility
UNEP FI – United Nations Environment Program Finance Initiative
2004: Italian and Belgian Pension reforms include SIP’s
Enhanced Analytics Initiative (EAI) founded
2005: Make Poverty History launched
UK Charities recommended to state the “extent to which SEE factors are considered in investment decisions”
UK Conservative party launches “Quality of life” policy group
2006: Launch of Sir Nicholas Stern’s report, The Economics of Climate Change
2007: Delegates from 189 countries met in Bali to begin negotiations on a new international climate change agreement to succeed Kyoto (expires 2012)
2010: UNPRI (United Nations Principles for Responsible Investment) approx $22trn signed up
Source: Cazenove Capital
SEE research analyses intangibles to enhance stock selection
• All companies are impacted by some of these. However, they are “intangible” and tend not to be included in financials
Transport
Biodiversity ProtectionLabour Standards
Animal Testing
Environmental Efficiency
Corporate governance
Directors’ remuneration
Bribery and corruption
Stakeholder engagement
Greenhouse Gas Emissions
Water Conservation
Fair Pricing
Renewable energy
Genetic Engineering
EMFFood Safety
Supply Chain Management Environmental Management
Equal Opportunities
Human Rights
Health and Safety
Tropical Hardwood Alternates to Toxic Chemicals
AIDS
Summary of our Socially Responsible Investment offering
Socially Responsible Investment policy launched Jan
2002.
Social, environmental and ethical (SEE) issues are
integrated into the investment process, which is
applied across all our Common Investment Funds and
other Pan-European funds.
Management of companies with poor SEE ratings are
engaged with, via both mainstream investor meetings
and one on one meetings.
Sustainable themes research help identify companies
exposed to these growth opportunities.
The Growth Trust for Charities, The Equity Income
Trust for Charities and The Income Trust for Charities
are restricted from holding tobacco stocks.
Negative ethical screens can be applied to larger clients.
Third party SRI fund selection.
Clients receive quarterly reports covering SEE and corporate governance
issues.
3rd Party Funds/ Social Impact
(UK only)Segregated Portfolios
(UK CIFs only)
Cazenove CapitalFunds
SustainableThemes
Engagement & SEE* Research
Ethical Restrictions
INTEGRATED RESEARCH
3rd Party Funds/ Social Impact
(UK only)Segregated Portfolios
(UK CIFs only)
Cazenove CapitalFunds
SustainableThemes
Engagement & SEE* Research
Ethical Restrictions
INTEGRATED RESEARCH
Pan European equities
All global asset classes
This enables a flexible solution to meet clients’ differing needs
• 1st – agrarian revolution
What is the 4th Revolution?...
• 2nd – industrial revolution
• 3rd - technological revolution (computers/mobiles etc)
• 4th – the sustainable revolution (alternatives, water capture etc)
…The Sustainable Revolution!Source: Cazenove Capital
Sustainability research – the philosophy
Source: CheuvreuxSource: Cheuvreux
Innovative and structured research approach
Green TechResearch
Focus
Population growth
Pressure on Natural Resources
ClimateChange
Security of Energy Supply
Local Pollution
The Lean Way
Global Challenges
Sustainable Solutions
The Clean Way The Green Way
Renewable Energy
-Hydro-Wind-Solar- Geothermal- Marine
-Hydro-Wind-Solar- Geothermal-Marine
Alternative Energy & Transport
- Hydrogen- Fuel cells-Power storage-Mass transport
- Hydrogen-Fuel cells-Power storage-Mass transport
Biomass resources
- Biofuels- Bioenergy-Biogas- Biomaterials-Wood
-Biofuels- Bioenergy-Biogas- Biomaterials-Wood
Waste Management
-Waste collection and handling-Waste treatment- Recycling
-Waste collection and handling-Waste treatment-Recycling
Eco-products &
services
- Engineering- Pollution control & testing-Eco-services
- Engineering- Pollution control & testing-Eco-services
WaterManagement
-Water treatment-Water distribution-Water savings
-Water treatment-Water distribution-Water savings
Sustainable Technologies
ResearchFocus
Energy Efficiency
- Insulation & lighting-Efficient power and electricity-Efficient transports
- Insulation & lighting-Efficient power and electricity-Efficient transports
Sustainable Tech Investment Universe
Population Growth
Pressure on Natural Resources
ClimateChange
Security of Energy Supply
Local Pollution
The Lean Way Sustainable
SolutionsThe Clean Way The Green Way
Renewable Energy
-Hydro-Wind-Solar- Geothermal- Marine
-Hydro-Wind-Solar- Geothermal-Marine
Renewable Energy
-Hydro-Wind-Solar- Geothermal- Marine
-Hydro-Wind-Solar- Geothermal-Marine
Alternative Energy & Transport
- Hydrogen-Fuel cells-Power storage-Mass transport
- Hydrogen-Fuel cells-Power storage-Mass transport
Alternative Energy & Transport
- Hydrogen-Fuel cells-Power storage-Mass transport
- Hydrogen-Fuel cells-Power storage-Mass transport
Biomass resources
- Biofuels- Bioenergy-Biogas- Biomaterials-Wood
-Biofuels- Bioenergy-Biogas- Biomaterials-Wood
Biomass resources
- Biofuels- Bioenergy-Biogas- Biomaterials-Wood
-Biofuels- Bioenergy-Biogas- Biomaterials-Wood
Waste Management
-Waste collection and handling-Waste treatment-Recycling
-Waste collection and handling-Waste treatment-Recycling
Waste Management
-Waste collection and handling-Waste treatment-Recycling
-Waste collection and handling-Waste treatment-Recycling
Eco-products &
services
- Engineering-Pollution control & testing-Eco-services
- Engineering- Pollution control & testing-Eco-services
Eco-products &
services
- Engineering-Pollution control & testing-Eco-services
- Engineering- Pollution control & testing-Eco-services
WaterManagement
-Water treatment-Water distribution-Water savings
-Water treatment-Water distribution-Water savings
WaterManagement
-Water treatment-Water distribution-Water savings
-Water treatment-Water distribution-Water savings
Sustainable Technologies
ResearchFocus
Energy Efficiency
- Insulation & lighting-Efficient power and electricity-Efficient transports
- Insulation & lighting-Efficient power and electricity-Efficient transports
Energy Efficiency
- Insulation & lighting-Efficient power and electricity-Efficient transports
- Insulation & lighting-Efficient power and electricity-Efficient transports
Sustainability Database
UN Principals of Responsible Investment
Principals• Principal 1 - We will incorporate ESG issues into
investment analysis and decision-making
• Principal 2 – We will be active owners and incorporate ESG issues into our ownership policies and practices
• Principal 3 – We will seek appropriate disclosure on ESG issues by the entities in which we invest
• Principal 4 – We will promote acceptance and implementation of the Principles within the investment industry
• Principal 5 – We will work together to enhance our effectiveness in implementing the Principles
• Principal 6 – We will each report on our activities and progress towards implementing the Principles
CCM’s solution• Integrated research – engagement, SEE
research, Sustainable themes
• SRI policy, Corporate Governance policy
• Integrated research – engagement, SEE research.
• Pressure on traditional and SEE research suppliers, UKSIF member, board member, committee members. SEE broker commission
• Engagement - RIN, investor collaboration
• Quarterly SEE report
Source: Cazenove Capital
Types of SRI
• Ethical/negative screening – Avoidance
• Best in class – Investment in leaders
• Constructive engagement – Dialogue & encouragement
• Shareholder activism – Confrontational engagementresolutions
• Sustainability theme investing/positive – Trend identification e.g. renewablescreening energy
• Integrated analysis – Risk & opportunity improve decision making
• Sustainable finance – Capital allocation to sustainable development solutions
Source: Cazenove Capital
SRI Biographies
Alexia Zavos, SRI
Alexia Zavos joined Cazenove in September 2006. She works with Katie
Gordon and focuses on the Social, Environmental and Ethical research
process across Pan Europe, ethical restriction implementation and Private
Client SRI marketing. Alexia joined from J M Finn where she was a
Private Client Fund Manager Assistant. Alexia has also worked at ISIS
(now F & C) and HSBC. Alexia worked with Katie for 6 months (SRI) in
2002 at Cazenove having graduated from Edinburgh University with an
MA in Geography. Alexia has 7 years investment experience and is a
Member of the Securities Institute (diploma).
DD: 020 34790244
.
Katie Gordon, SRI
Katie Gordon joined Cazenove in 2000. She is the Manager of Socially
Responsible Investment (SRI), focussing on the Social, Environmental
and Ethical research process across Pan Europe, ethical restriction
implementation and Charity SRI marketing. Katie joined from the
marketing company Swordfish where she was the founding account
director. Katie graduated from Bristol University with a 2:1 in Geography,
is a Board Director of (UKSIF) the UK Social Investment Forum and is
both a trustee and on the investment committee of Durrell Wildlife
Conservation Trust. Katie has 10 years of investment experience.
DD: 020 34790243
Regulatory Information and Risk Warnings
This document has been issued by Cazenove Capital Management. It is for information purposes only and does not constitute an offer to enter into any contract/agreement nor is it a solicitation to buy or sell any investment or to provide any services referred to therein. Cazenove Capital Management is the name under which Cazenove Capital Management Limited (registered No. 3017060) and Cazenove Investment Fund Management Limited (registered No. 2134680) each authorised and regulated by the Financial Services Authority provide investment products and services. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance.
The source of the data is Cazenove Capital Management unless otherwise stated.