Katie gordon

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Katie gordon

  1. 1. Wealth Management SRI Portfolio Construction Across the Asset Classes Katie Gordon, SRI, Cazenove Capital Management 12/11/10
  2. 2. Contents <ul><ul><ul><li>Wealth Management Market – SRI issues </li></ul></ul></ul><ul><ul><ul><li>SRI Today </li></ul></ul></ul><ul><ul><ul><li>3 rd Party Fund Selection </li></ul></ul></ul><ul><ul><ul><li>Impact Investment </li></ul></ul></ul><ul><ul><ul><li>Sample SRI Portfolios </li></ul></ul></ul><ul><ul><ul><li>Appendix </li></ul></ul></ul>
  3. 3. Wealth Management – the market
  4. 4. Wealth Management – the market <ul><li>Clients </li></ul><ul><li>Individuals </li></ul><ul><li>Trustees </li></ul><ul><li>Family offices </li></ul><ul><li>Advisors </li></ul><ul><li>Fund Managers </li></ul><ul><li>Intermediaries: IFA’s, Consultants, Accountants, Lawyers, Trust Companies </li></ul><ul><li>Issues </li></ul><ul><li>Understanding SRI today </li></ul><ul><li>Sustainable theme vs integration </li></ul><ul><li>Performance myth </li></ul><ul><li>Philanthropy vs investment </li></ul><ul><li>Portfolio styles: pooled vs segregated; asset class vs entire portfolio </li></ul>
  5. 5. SRI Today
  6. 6. Expansion of Socially Responsible Investment (SRI) Earlier Style S ocial E nvironmental E thical Research ACTIVISM & ENGAGEMENT Best Practice Walk Away Push for Change 4 th Revolution Sustainable Themes Companies of the future Source: Cazenove Capital Ethical Restrictions
  7. 7. Integrated SEE research - best practice fund management <ul><li>Riskmetrics ratings </li></ul><ul><li>5: Environmental impact of the sector (5 is high, 1 is low) </li></ul><ul><li>AAA: environmental rating of the stock compared to its sector (AAA is best - CCC is worst) </li></ul><ul><li>* Social rating is BB or below </li></ul><ul><ul><ul><li>Applies to all Pan-European funds </li></ul></ul></ul><ul><ul><ul><li>Specialist SEE Research Ratings within our valuation matrix </li></ul></ul></ul><ul><ul><ul><li>Analysts aware of SEE issues in stock selection </li></ul></ul></ul><ul><ul><ul><li>Specialists within investment team </li></ul></ul></ul>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 ANGLO AMERICAN ORD USD0.50 RIO TINTO ORD GBP0.10 BHP BILLITON ORD USD0.50 XSTRATA USD0.50 LONMIN USD1.0 ANTOFAGASTA ORD GBP0.05
  8. 8. 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 Sector Top half outperforms by 59% Chemicals Sector Top Half Outperforms by 78% e Banks Sector Top Half Outperforms by 23%*** Autos Sector Top Half Outperforms by 100%
  9. 9. Sustainable investment results – Lamprell Plc <ul><li>Provides construction and engineering services for oil and gas rigs and the offshore wind market. </li></ul><ul><li>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. </li></ul><ul><li>Ideally positioned to take advantage of the expansion of the global offshore wind farm market and the constraint on liftboat capacity. </li></ul><ul><li>This area represents a significant proportion of the bidding pipeline. </li></ul>* Source: Datastream
  10. 10. Selecting the best 3 rd party fund selection
  11. 11. SRI Third Party Fund Selection <ul><li>Process Summary; </li></ul><ul><ul><ul><li>Strategy & SRI </li></ul></ul></ul><ul><ul><ul><li>SRI responsibility </li></ul></ul></ul><ul><ul><ul><li>Is the investment strategy consistent with our own? E.g. sustainable theme selection </li></ul></ul></ul><ul><ul><ul><li>Does the fund structure reflect the strategy? </li></ul></ul></ul><ul><ul><ul><li>Is the SRI research integrated into the funds investment process? </li></ul></ul></ul><ul><li>Quality </li></ul><ul><li>Multi-manager responsibility – final sign off and buy list ownership </li></ul><ul><ul><ul><li>Qualitative assessment of investment philosophy, process and people. </li></ul></ul></ul><ul><ul><ul><li>Quantitative analysis helps to test our expectations of fund behaviour in a range of market conditions </li></ul></ul></ul><ul><ul><ul><li>Is it “Best in Class?” </li></ul></ul></ul>SRI funds are selected and monitored alongside our in house specialist multi-manager team
  12. 12. Where philanthropy meets investment Impact Investment
  13. 13. Mission/Social Impact Investing <ul><li>Investments that fit with clients values </li></ul><ul><li>Some clients wish to set up charities, or give to charities, traditionally called philanthropy </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>E.g. client wanting to support Poverty Alleviation - Investments should include microfinance and support of fair trade </li></ul><ul><li>Liquidity is often an issue with impact investments. </li></ul>
  14. 14. Sample SRI Portfolios
  15. 15. Sample SRI Portfolio – PC pooled portfolio (medium risk) Equities Fixed Income Hedge Cash 2 Property funds 1 SRI property fund Social/eco housing Property Asset Class Investment Solution SRI Solution For illustrative purposes 1 CCM fund 2 3rd party funds 1 SRI 3rd party fund 2 CCM funds 3 SRI funds 2 Cleantech investment trust/unit trust 3rd party account 2 Hedge funds 1SRI hedge fund Engagement and SEE Integration Negative screening Positive screening SEE integration Positive and negative screening SEE integration Engagement and screening
  16. 16. Sample SRI Portfolio – PC segregated (medium risk) Cash Alternatives Fixed Income Equities Asset Class Investment Solution SRI Solution Property 1 Property fund 1 SRI Property fund For illustrative purposes 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 Positive and negative screening, Engagement SEE integration, negative screening SEE integration Negative screening Social/eco housing Negative and positive screening Positive & negative screening SEE integration Sustainable themes and positive screening
  17. 17. Sample SRI Portfolio – Social impact: poverty alleviation UK segregated Global 3 rd party ethical funds Global 3 rd party sustainable & ethical funds & ETF’s Investment solution 3 rd 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
  18. 18. Appendix
  19. 19. History and development of SRI Negative Screening Green Movement Positive Screening Engagement & Activism Integrated Analysis Sustainable Finance <ul><li>1920s: Methodist Church align investments with its values by excluding alcohol and gaming </li></ul><ul><li>1980s: Anti-apartheid movement excludes investments in S Africa </li></ul><ul><li>1984: The first UK ethical funds is launched, followed later by European ethical fund launches </li></ul><ul><li>1992: Rio de Janeiro – UN conference on Development and the Environment </li></ul><ul><li>2000: Pension Act requires SRI disclosure in UK </li></ul><ul><ul><ul><li>Largest Dutch pension funds draft SRI policies following Trade Union pressure </li></ul></ul></ul><ul><ul><ul><li>UN Millennium Development Goals launched </li></ul></ul></ul><ul><li>2001: Social and environmental reporting by companies mandatory in France </li></ul><ul><ul><ul><li>Association of British Insurers (ABI) issues SRI disclosure Guidelines </li></ul></ul></ul><ul><ul><ul><li>German private pension fund regulation requiring SEE statement </li></ul></ul></ul><ul><li>2002: Rio +10 - UN conference on Development and the Environment (Johannesburg) </li></ul><ul><li>2003: Dutch insurance companies create Code of Conduct including social responsibility </li></ul><ul><ul><ul><li>UNEP FI – United Nations Environment Program Finance Initiative </li></ul></ul></ul><ul><li>2004: Italian and Belgian Pension reforms include SIP’s </li></ul><ul><li>Enhanced Analytics Initiative (EAI) founded </li></ul><ul><li>2005: Make Poverty History launched </li></ul><ul><ul><ul><li>UK Charities recommended to state the “extent to which SEE factors are considered in investment decisions” </li></ul></ul></ul><ul><ul><ul><li>UK Conservative party launches “Quality of life” policy group </li></ul></ul></ul><ul><li>2006: Launch of Sir Nicholas Stern’s report, The Economics of Climate Change </li></ul><ul><li>2007: Delegates from 189 countries met in Bali to begin negotiations on a new international climate change agreement to succeed Kyoto (expires 2012) </li></ul><ul><li>2010: UNPRI (United Nations Principles for Responsible Investment) approx $22trn signed up </li></ul>Source: Cazenove Capital
  20. 20. SEE research analyses intangibles to enhance stock selection <ul><ul><ul><li>All companies are impacted by some of these. However, they are “intangible” and tend not to be included in financials </li></ul></ul></ul>Transport Biodiversity Protection Labour 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 EMF Food Safety Supply Chain Management Environmental Management Equal Opportunities Human Rights Health and Safety Tropical Hardwood Alternates to Toxic Chemicals AIDS
  21. 21. Summary of our Socially Responsible Investment offering <ul><ul><ul><ul><li>Socially Responsible Investment policy launched Jan 2002. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>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. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Management of companies with poor SEE ratings are engaged with, via both mainstream investor meetings and one on one meetings. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Sustainable themes research help identify companies exposed to these growth opportunities. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The Growth Trust for Charities, The Equity Income Trust for Charities and The Income Trust for Charities are restricted from holding tobacco stocks. </li></ul></ul></ul></ul><ul><ul><ul><li>Negative ethical screens can be applied to larger clients. </li></ul></ul></ul><ul><ul><ul><li>Third party SRI fund selection. </li></ul></ul></ul><ul><ul><ul><li>Clients receive quarterly reports covering SEE and corporate governance issues. </li></ul></ul></ul>Pan European equities All global asset classes This enables a flexible solution to meet clients’ differing needs
  22. 22. <ul><li>1 st – agrarian revolution </li></ul>What is the 4 th Revolution?... <ul><li>2 nd – industrial revolution </li></ul><ul><li>3rd - technological revolution (computers/mobiles etc) </li></ul><ul><li>4th – the sustainable revolution (alternatives, water capture etc) </li></ul>…The Sustainable Revolution! Source: Cazenove Capital
  23. 23. Sustainability research – the philosophy Source: Cheuvreux Innovative and structured research approach Green Tech Research Focus Population growth Pressure on Natural Resources Climate Change 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 Water Management - Water treatment - Water distribution - Water savings - Water treatment - Water distribution - Water savings Sustainable Technologies Research Focus 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 Climate Change Security of Energy Supply Local Pollution The Lean Way Sustainable Solutions The 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 Water Management - Water treatment - Water distribution - Water savings - Water treatment - Water distribution - Water savings Water Management - Water treatment - Water distribution - Water savings - Water treatment - Water distribution - Water savings Sustainable Technologies Research Focus 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
  24. 24. UN Principals of Responsible Investment <ul><li>Principals </li></ul><ul><li>Principal 1 - We will incorporate ESG issues into investment analysis and decision-making </li></ul><ul><li>Principal 2 – We will be active owners and incorporate ESG issues into our ownership policies and practices </li></ul><ul><li>Principal 3 – We will seek appropriate disclosure on ESG issues by the entities in which we invest </li></ul><ul><li>Principal 4 – We will promote acceptance and implementation of the Principles within the investment industry </li></ul><ul><li>Principal 5 – We will work together to enhance our effectiveness in implementing the Principles </li></ul><ul><li>Principal 6 – We will each report on our activities and progress towards implementing the Principles </li></ul><ul><li>CCM’s solution </li></ul><ul><li>Integrated research – engagement, SEE research, Sustainable themes </li></ul><ul><li>SRI policy, Corporate Governance policy </li></ul><ul><li>Integrated research – engagement, SEE research. </li></ul><ul><li>Pressure on traditional and SEE research suppliers, UKSIF member, board member, committee members. SEE broker commission </li></ul><ul><li>Engagement - RIN, investor collaboration </li></ul><ul><li>Quarterly SEE report </li></ul>Source: Cazenove Capital
  25. 25. Types of SRI <ul><li>Ethical/negative screening – Avoidance </li></ul><ul><li>Best in class – Investment in leaders </li></ul><ul><li>Constructive engagement – Dialogue & encouragement </li></ul><ul><li>Shareholder activism – Confrontational engagement resolutions </li></ul><ul><li>Sustainability theme investing/positive – Trend identification e.g. renewable screening energy </li></ul><ul><li>Integrated analysis – Risk & opportunity improve decision making </li></ul><ul><li>Sustainable finance – Capital allocation to sustainable development solutions </li></ul>Source: Cazenove Capital
  26. 26. 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 [email_address] . 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 katie.gordon@cazenovecapital.com
  27. 27. Regulatory Information and Risk Warnings <ul><li>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. </li></ul><ul><li>The source of the data is Cazenove Capital Management unless otherwise stated. </li></ul>

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