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Heard from AIMA Canada Investor Forum 2019

10/22/19, 11:56 AM

AIMA Canada’s annual Investor Forum in Toronto was a sold out event, with over 400 industry professional attendees from Canada, the United States, and other global jurisdictions. Castle Hall was pleased to be invited to speak at the event. Our Toronto based Director, Esther Zurba, joined a panel on The Rise of Responsible Investing.

The AIMA Canada Investor Forum brought together senior industry professionals across investment, operations, and compliance functions to weigh in on the latest in hot topics related to hedge fund investing, alternative credit, blockchain and alternative data / artificial intelligence, private equity from investment and operational due diligence perspectives, as well as ESG / responsible investing. Discussions also revolved around anticipated opportunities and risks for 2020.

Some interesting observations:

  • ESG and responsible investing were a dominant theme throughout the conference: the subject matter came up repeatedly across panels.  Audience engagement in this area was very high.
     
  • Many panels discussed, in addition to the “usual suspect” themes, how ESG factors have become very relevant to their given asset class or sector: themes from any of E (environment), S (social), and / or G (governance) are becoming front and centre.

  • Panelists on The Rise of Responsible Investing, including Castle Hall’s Esther Zurba, agreed that while responsible investing means different things to different types of investors, initiatives in this area have evolved significantly over the course of the past 5-10 years, and particularly in recent years.

  • Institutional investors have largely integrated ESG factors into their external asset manager selection process. To this point, responsible investing has evolved from exclusions / restrictions to more pro-active “impact” and “engagement” initiatives. Responsible investing is less a dedicated mandate at the institutional investor level, and more of an overall portfolio approach.
  • Institutional investor panelists agree there is no “one size fits all” approach to the consideration of ESG factors and responsible investing: simple answers to complex questions are unsatisfactory. Some investors may emphasize one area more than other investors: some are sharply focused on pro-active engagement in climate change issues, while others are looking at issues of diversity and inclusion within the business of asset managers.

  • Investors are looking to understand how external asset managers and / or underlying portfolio companies measure up in terms of ESG factors: various ESG research and / or ratings providers such as MSCI ESG Research, RepRisk, ISS, etc., can be helpful tools. Other useful tools include certification agencies such as GRESB Infrastructure that recognize asset managers for their efforts. That said, investors are conscious of potential “greenwashing” (things seem better than they are).

  • The responsible investing journey includes dialoguing with asset managers to gain a better understanding of their impact - what they are pro-actively doing (versus not doing); some investors have taken this a step further and are looking to validate that policies are borne out in evidenced practical procedures, and then assessing whether controls and procedures are effective, and whether the manager’s approach is sustainable.

  • One thing is certain: the times they are rapidly a’changin’. Castle Hall has been monitoring cases such as the recent fall from grace of long only asset manager Ken Fisher (read the blog post here), many of whose public pension investors responded immediately and sharply to his “off-color” remarks at a recent investor conference, demonstrating with their feet that #metoo-esque comments (which may perhaps be indicators of inappropriate cultural / business management practices) have now become reputational “kryptonite. How to proactively avoid such asset managers (or determine conclusively if a given asset manager has exhibited unacceptable conduct?

  • Panelists agreed that watching for evidence of emotional intelligence or EQ is critical. Ongoing reputational due diligence can prove to be helpful with background checks and media monitoring.

  • Progressive institutional allocators have already started to tie significant portions of employee bonus compensation to ESG factors - we heard a figure of ~ 25% (!). We believe this is an initiative to watch as practices from investors who are serious about ESG and investing responsibly trickle down and across the rest of the industry.

Many thanks to AIMA Canada for organizing a successful event with thought provoking content.

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