Tailoring SRI Research to Emerging Europe investment


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A presentation by Veronika Juchnewitsch at TBLI CONFERENCE EUROPE 2008.

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  • Tailoring SRI Research to Emerging Europe investment

    1. 1. Tailoring SRI Research to Emerging Europe Investment Veronika Juchnewitsch Limestone Investment Management TBLI Conference Europe 2008, Amsterdam
    2. 2. Limestone believes, that <ul><li> </li></ul><ul><li>Socially responsible investing means making an impact and getting better investment ideas – not company ratings </li></ul><ul><li>Today, where the transparency and data availability are low, </li></ul><ul><ul><li>active bottom up stock selection </li></ul></ul><ul><ul><li>coupled with engagement </li></ul></ul><ul><li>Is the key to maximising financial outperformance and improving sustainable business practises </li></ul><ul><li>To have a maximum impact, engagement should be a collaborative rather than competitive initative </li></ul>
    3. 3. Limestone Investment Management <ul><li>Limestone Investment Management - Emerging Europe specialist equity investment manager located in Tallinn </li></ul><ul><ul><li>Founded August 2007 </li></ul></ul><ul><ul><li>Fully management owned and entrepreneurial </li></ul></ul><ul><ul><li>Strong investment team with a public track record in Emerging Europe </li></ul></ul><ul><ul><li>Signatory to the UN PRI </li></ul></ul><ul><li>Investment Philosophy is based on a ctive management with no style bias </li></ul><ul><ul><li>Large tracking error and high information ratio </li></ul></ul><ul><ul><li>High conviction stock-picking </li></ul></ul><ul><ul><li>Proximity to target markets </li></ul></ul><ul><ul><li>Strong investment team </li></ul></ul><ul><ul><li>extensive local contact network </li></ul></ul>
    5. 5. Dedicated to New Europe CEE Region compared to “ old EU ” Estonia Latvia Lithuania Poland Macedonia Montenegro Albania Serbia Bosnia and Herzegovina Bulgaria Romania Croatia Austria Hungary Czhech Republic Slovakia Slovenia Kosovo CEE 11 Population million 108 GDP growth 5.8% GDP per capita, $ 13,631 CPI 5.1% EU 15 385 2.2% 32,862 2.3% Export growth 10% 4% FDI (% of GDP) 2004 4.8% 0.7% Gov. Debt (% of GDP) 31% 63% Fiscal bal. (% of GDP) -2.3% -2.7% Unemployment rate 9.8% 7.9% Source: EC, Eurostat, IMF As of 2007
    6. 6. Growth Engine’s Two Pillars: FDI and EU Transfers Source: Eurostat, UniCredit , IMF, European Commission Foreign direct investments as %GDP, average <ul><li>Strong foreign direct investments alleviate the current account imbalances </li></ul><ul><li>while EU transfers boost underdeveloped infrastructure and agriculture </li></ul><ul><li>together these open up great opportunities for investors </li></ul>EU transfers to new members as %GDP
    8. 8. Limestone’s Investment Philosophy <ul><li>The objective is to provide exposure to the new EU member state equity markets through a disciplined identification of undervalued stocks with focus on ESG issues and engagement </li></ul><ul><ul><li>Active management with no style bias </li></ul></ul><ul><ul><li>Large tracking error (and high information ratio) </li></ul></ul><ul><ul><li>High conviction stock-picking based on solid proprietary research </li></ul></ul><ul><ul><li>Proximity to target markets </li></ul></ul><ul><ul><li>Strong investment team, extensive local contact network </li></ul></ul><ul><ul><li>Dedicated team of 5 sector analysts / portfolio managers </li></ul></ul><ul><ul><li>Disciplined risk management and transparent GIPS compliant reporting </li></ul></ul>Alvar Roosimaa, CIO, fund manager 12 years of experience Veronika Juchnewitsch fund manager, head of SRI research 3 years of experience
    9. 9. Limestone’s Investment Process 1,000 companies 40 companies 320 companies 400 companies
    10. 10. Main concerns in New Europe – transparency and data availability <ul><li>SRI Research and Engagement partnership with GES Investment Services </li></ul><ul><li>320 companies out of 1000 companies selected based on: </li></ul><ul><ul><ul><li>Quantitative and; </li></ul></ul></ul><ul><ul><ul><li>Qualitative criteria + negative screens </li></ul></ul></ul><ul><li>GES Risk Rating research identified data availability to be the main challenge </li></ul><ul><ul><ul><li>148 companies did not disclose any environmental information </li></ul></ul></ul><ul><ul><ul><li>180 companies did not disclose any information about human rights </li></ul></ul></ul><ul><li>Companies not publishing ESG data obtained the lowest rating </li></ul>
    11. 11. Limestone Research: Quantitative idea generation Highly dynamic proprietary database <ul><li>320 company coverage with DCF models and price targets </li></ul><ul><li>Data sources include 100 company meetings p.a. and local broker contacts </li></ul><ul><li>We believe Limestone is the only local asset manager having built its investment process around extensive fundamental research </li></ul>
    12. 12. Engagement in companies <ul><li>Investing responsibly and not constraining the investment universe </li></ul><ul><li>Rather than rewarding the best in class, concentrating on those that benefit the most from engagement </li></ul>Research company specific ESG issues Company meetings and recommendations Follow up and actions by company Utilise shareholder options Progress in company behavioour Selling the holding NO NO YES YES
    13. 13. <ul><li>Standard SRI approach </li></ul><ul><li>Sector based negative screening </li></ul><ul><li>Rating by SRI Research Agency </li></ul><ul><li>Investment in best in class companies </li></ul><ul><li>Limestone SRI approach </li></ul><ul><li>Sector based negative screening – eliminates only 12 companies </li></ul><ul><li>Active research, using management meetings and engagement with companies .. </li></ul><ul><li>- Provides access to proprietary info </li></ul><ul><li>- Increases the level of ESG reporting </li></ul><ul><li>- Creates better investment ideas </li></ul><ul><ul><li>Due to lack of standardized or publicly available data is not applicable in New Europe </li></ul></ul>Limestone has developed an effective fundamental research and engagement based SRI investment process, which enables us to increase earnings visibility and to recognize investment risks Tailored Approach For New Europe
    14. 14. Closing the Information Gap Through Extensive Research Capabilities <ul><li>Extra-Financial sources of information </li></ul><ul><li>SRI Research from GES </li></ul><ul><li>Public information </li></ul>Limestone Investment Team Triple bottom line research Companies <ul><li>Management meetings </li></ul><ul><li>Financial information </li></ul><ul><li>Management quality </li></ul><ul><li>CSR information </li></ul>Gain access to information omitted due to lower standards of publicly available data. Influence companies to be more transparent and publish information
    16. 16. Value Proposition: Portfolio Characteristics (as of 4 Nov ‘08) At current price levels, a carefully constructed and actively managed high conviction portfolio offers superior long term returns.
    17. 17. New Europe At Discount: LS Universe vs Euro STOXX 600 Median P/E ’08E Median P/B Median PEG ’08-’10E Average YTD return Sources: Bloomberg, LimeStone Research
    18. 18. Engagement: SIF1 Banat Crisana, Romania Source: GES Investment Services, SIF1 Banat Crisana Engagement Report for Limestone The recommendations were accepted and SIF1 is currently working on improving its Corporate Governance procedures and implementing a CSR policy The company also stated, that it will start publishing ESG reports starting from 2009
    19. 19. Time to get exposed to New Europe Market downturn has created a unique opportunity <ul><li>Complement your portfolios with an allocation to New Europe: </li></ul><ul><ul><li>Vicious circle of retail panic, sell side downgrades, and rating agencies trailing the market has brought values to imply near fatal collapse </li></ul></ul><ul><ul><li>Equities in Eastern Europe have reached fundamentally attractive levels </li></ul></ul><ul><ul><li>Convergence process still heading forward, though further potential varies across different markets and segments </li></ul></ul><ul><ul><li>No real signs of economies landing too hard can be detected </li></ul></ul><ul><li>Careful fundamental research complemented with ESG component and engagement helps to better understand the underlying risks and opportunities </li></ul><ul><ul><li>Most extensively researched portfolio ideas in the region </li></ul></ul><ul><ul><li>Better information leads to informed investment decisions </li></ul></ul><ul><li>New Europe SRI fund – waiting investment partners </li></ul><ul><ul><li>Luxembourg registered UCITS </li></ul></ul><ul><ul><li>EUR dominated share class </li></ul></ul><ul><li>For further information contact: Paavo Põld, Head of Business Development, paavo.pold@limestonefunds.eu </li></ul>
    20. 20. <ul><li>CONTACT: </li></ul><ul><li>Paavo Põld </li></ul><ul><li>Limestone Investment Management </li></ul><ul><li>Väike-Karja 12 Tallinn 10140 Estonia </li></ul><ul><li>[email_address] </li></ul><ul><li>Phone +372 511 9201 </li></ul><ul><li>Fax +372 628 2370 </li></ul><ul><li>www.limestonefunds.eu </li></ul>Disclaimer : This summary is for information purposes only and does not constitute an offer to sell or a solicitation to buy. Citizens or residents of the United States may not invest in this Fund. Opinions and estimates constitute the manager’s judgment and are subject to change without notice. Past performance is not indicative of future results. Investments in emerging markets should be considered high risk where a portion or total loss of capital is conceivable. No assurance can be given that the investment objective will be achieved or that an investor will receive a return of all or part of his/her initial capital, and investment results can fluctuate substantially over any given time period. Please refer to the Fund’s prospectus which contains brief descriptions of certain risks associated with investing in the fund. Questions should be directed to your local representative or financial advisor. This document may not be reproduced, distributed, or published for any purpose without the prior written consent of the manager.