Chapter 9 pt 3 Flashcards
(20 cards)
ow often is performance likely to be assessed?
- At least seen more frequently than once a year
- Challenge for client to ensure fund managers do not become short term in approach if they know client is assessing performance on regular basis
- Brunel asset management accord states investment performance in short term has limited significance in evaluating the manager
What factors does the Brunel Asset Management Accord highlight as cause for concern?
- “Persistent failure to adhere to Brunel’s investment principles and the spirit of the accord.
- A change in investment style, or investments that do not fit into the expected style.
- Lack of understanding of reasons for any underperformance, and/or a reluctance to learn lessons from mistakes. Conversely, complacency after good performance should be avoided.
- Failure to follow the investment restrictions or manage risk appropriately, including taking too little risk.
- Organisation instability or the loss of key personnel.
What does ICGN Model Mandate ask for early reporting of?
- “the turnover in the portfolio for the reporting period and an explanation if the turnover is outside the expected turnover range for that period; …
- any changes to governance, ownership or structure of the manager, or in its investment approach or risk appetite; …
- any regulatory investigation or legal proceedings against the manager, any key staff or the fund; …
- any changes in staff ownership in the fund or any equivalent vehicle managed by the manager or changes in staff ownership in the manager itself; …
- regular financial accounts of the manager; …
- any changes in or waivers of the manager’s conflicts of interest policy; and
- any additional conflicts that have arisen over the reporting period.”
What is a common method clients use to assess ESG delivery across portfolios?
- Clients often use portfolio-wide statistical assessments
- , typically supported by ESG research firms like MSCI or Morningstar Sustainalytics
- evaluate ESG factors and estimate ESG-linked performance attribution
What are the limitations of third-party ESG analysis tools?
- These tools rely on the research firms’ own data, which may suffer from quality and consistency issues.
- As a result, they might not fairly represent the fund manager’s ESG integration.
What value do third-party ESG assessments offer despite their limitations?
- They provide a foundation for dialogue between asset owners and fund managers, enabling deeper discussions about the quality of ESG integration and investment decision-making processes.
When looking at overall portfolio analysis what will clients focus on?
- Areas below the benchmark e.g. If E factors are below benchmark and others are above then that will be focus
- Will be discussion about if benchmark is appropriate
- View discussions on individual ratings as opportunity to test quality of fund manager’s own ESG integration and analysis
If the fund manager explains that the rating provided by the agency is based on historical data and engagement with company reveals progress what will client ask?
- what engagement the fund manager has carried out,
- its level of confidence in the company’s approach as a result of that engagement, and
- over what time horizon that change is likely to be more visible to external parties - client then return to cases after appropriate amount of time
What do annual reports of investment firms describe?
- their investment processes,
- the themes that they have worked on, and
- case studies on ESG investing or stewardship (or both).
What do investment firms that are signatories to the PRI also have to submit?
PRI Transparency Report
What does the reporting porcess allow signatories to do according to the PRI?
- evaluate their responsible investment progress against an industry-standard framework,
- receive ongoing feedback and tools for improvement,
- benchmark their performance against peers,
- see the big picture by understanding the state of the market,
- strengthen internal processes and build ESG capacity, and
- summarize activities for staff, clients, shareholders, and regulators
What is reporting on real-world impacts?
Relate investment process to the real world e.g. Equivalent number of cars taken off the road or number of trees planted
What did the PLSA’s 2015 disclosure guide aim to improve in manager reporting for public equities?
- It set expectations for manager reporting on ESG integration and stewardship activities
- focus on identifying and managing ESG risks and opportunities.
What are the 2 areas that the PLSA disclosure guide asks for separate disclosures on?
- identification of ESG risk and
- the management and monitoring of ESG risks and opportunities, with suggested possible disclosures in respect of each
What are three possible disclosures to demonstrate the identification of ESG risks and opportunities?
- Examples of ESG-related stock or sector risks/opportunities and the rationale for taking them
- Material ESG factors identified in fundamental analysis and valuation
- Influence of long-term ESG trends or themes on portfolio construction
What are two possible disclosures to demonstrate the management and monitoring of ESG risks and opportunities?
- ESG analysis of top-performing or high-risk stocks in the reporting period
- Notable changes in portfolio companies’ ESG performance, especially where the manager’s view differs from market/rating agencies
What are the two areas of ESG-specific disclosure that the ICGN requests?
- The manager’s assessment of ESG risks embedded in the portfolio: what risk are and how they are identified, monitored and managed, compared against the external tools
- A detailed disclosure of stewardship engagement and voting activity
What does the asset owner want to know about the ESG approah:
- Is it genuinely aligned with fund manager’s investment style
- Delivered effectively in practice
- Aligned with her own investment needs and beliefs
ow can clients guard against fund managers selecting individual cases that shine their work in the best light?
- Seek to identify outliers so they can test whether the asserted method for ESG integration is genuinely delivered in practice, consistently across the whole portfolio
