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Investment firm sets up 3.0 investment model

17 January 2013

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A new asset management firm has been formed to proactively engage with the companies it invests in, a practice they have coined 'ownership investing'.

Ownership Capital aims to implement model 3.0 of responsible investment, where environmental, social and governance (ESG) factors are taken into consideration and are brought back into a fundamental financial framework in order to make 'smarter' investment decisions.

The eight-man investment team is headed by Sir George Buckley, the former chief executive officer of 3M, the US manufacturing and innovation company, and Alex van der Velden, the ex-head of responsible equity strategies at PGGM.

Together they are looking to manage a long-horizon fund, investing in a concentrated portfolio of North American and European equities for international institutional investors, with a target fund size of €2bn.

Sir George, Ownership Capital chairman, said: "There is a pressing need for shareholder engagement and a sustainable approach to business in the current turbulent economic environment.

"The chance to chase a quick dollar (and fear of not doing so) has distracted investors in the past, often to the detriment of long-term growth and good returns, and this simply has to change if we're to get the economy back on track. It's not about the next quarter or even the next year- it's about the next decade."

The time horizon is a really 'crucial' point in what they are doing, said van der Velden, Ownership Capital partner and chief investment officer. The normal incentive within the fund management industry encourages short-termism.

But the problem is that if you don't care about the long-term horizon, then you don't care about ESG, and if you're focused on trading from quarter to quarter then you are not interested in the long-term success of that business, he argued.

The strategy was pioneered when the team worked for PGGM in 2008, when the fund had an idea to build an investment process to achieve the objectives of making more sensible investment decisions based on a deeper understanding of ESG while actively engaging with the company concerning financial and long-term qualitative issues.

The team expanded the mandate from €1bn when they started in 2008 to €3bn last year.

The venture also capitalises on the need for a long-term engaged investment approach, as called for by the UN Principles for Responsible Investment (UN PRI).

Van der Velden said that the 1.0 model of responsible investment is where people sign up to the UN PRI. Model 2.0 is where most people are, when they hire someone externally or internally to engage with companies when something goes wrong. Ownership Capital is, he said, the next step in this process.

'Engagement' seems to be a buzzword in the industry, but van der Velden stipulated that there is a difference between reactive engagement, where you're only talking to a company when there is a problem, and proactive engagement, where you build a relationship with the company.

"That is something that very few investors actually take the time to do, and certainly the ones that do that are not really focused on the ESG factors. It's still too new an area for most old-school fund managers to really take an interest," he said.

Increasingly more people are realising that if you want to be an engaged owner, then you have to concentrate your portfolios, said van der Velden. People who are 'ahead of the curve' are realising that excessive diversification will start to reverse as a trend.


First published 17.01.2013

monique_simpson@wilmington.co.uk