Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Hard-core ESG manager lobs in Australia
Rob Harrison, a well-known marketer of new funds management strategies in both Australasia and the US and Europe, who has been living in New York for several years, is bringing a hard-core ESG manager to Australia and New Zealand. He is being joined by Steve Larkin, a former colleague at BNP Paribas Investments in Sydney.
The two are introducing Promethos Capital, an ESG manager which puts its money where its mouth is. Promethos is majority women owned and has gender, race and background as important criteria across its employment policy. It also comes with a pedigree of top investment performance, courtesy of co-founder Ivka Kalus, who left Boston Advisors to drive the start-up.
Kalus, who has visited Australia several times in recent years, both for business and on holiday, said from Boston last week: “Valuing your values is the first page of our pitch book.” The firm calls what it does “intentional” investing, which involves both negative and positive ESG screens across both equity and debt. She says that the ‘S’ (social), is complex in every business. And the ‘E’ and the ‘G’ tend to overlap. “You can’t have the ‘G’ without the ‘S’, she says. “There’s a lot more attention needed.”
Business wise, Promethos is about18 months into its new business. “They say it takes three years to get up and running,” Kalus said. “We already have several accounts and we are thinking that we are punching above our weight. We are also going well in terms of building our brand.”
She said in a statement released today (August 24): “Our investment process ensures that we stay true to client values while seeking to generate market-beating returns through a disciplined, systematic, high-conviction investment process that targets market inefficiencies. Over the last twenty years, I’ve observed the focus of Australian investors on ESG metrics and I believe our investment strategies align to their values.”
Harrison and Larkin have launched 3PD (third-party distribution) with Promethos as their first client. At BNP in Sydney they both worked within a multi-affiliate model similar to that of a third-party marketing business. Harrison said Promethos was highly active with concentrated portfolios. The manager has an ‘active share’ of more than 90 per cent (meaning the proportion of its portfolio outside the index).
He says: “One we start talking about individual companies, we know that each one is not perfect. We don’t get accused of ‘investment washing’ – sometimes known as ‘green washing’ – but we have to be ‘more Catholic than the Pope’ when we talk about ESG. There are no perfect companies.” Kalus says: “When we talk about ‘getting there’, where is ‘there’? We never finish the battle.”
Until earlier this year, Harrison represented Melbourne-based Equity Trustees from overseas, looking to bring international managers to Australia on behalf of the fund administrator and trustee company.
– G.B.
