Our newest investment team is our Unconstrained Global Credit Team based in Louisville, Kentucky. In order to provide some insights into the process and ESG approach, we have included a Q&A discussion with the Head of the team, Stephen Johnson. From next year, the report will include a dedicated profile on this team.
Working together, we have successfully developed a process, including supporting investment systems, which serve as the basis for collaborative portfolio management for two large global investment management firms and their clients.
We are client-led, striving to align with our clients at all times, providing them with innovative solutions, as opposed to being product-led. This stewardship mind-set binds our team and underpins how we have evolved and grown over the years.
- Breaking down the portfolio manager role into a series of smaller, manageable and measurable tasks and in doing so, removing key person risk in addition to isolating and attributing outcomes to the various contributions to the product.
- Our process also defines and treats the management of investment risks as everyone's responsibility. As fund failures are most commonly associated with the failures of risk management and control, this approach makes the risk management process more transparent and elevates its status across the team.
- We have developed an investment opinions database and workflow system called ION to support this approach.
- ION also systematises our research and investment view elements of our process, which are the building blocks for any portfolio we manage. The system captures and measures research and formalises its linkage to our portfolios. This naturally elevates the importance of our research, and creates a process for reflection and improvement.
We invest in public bonds. The universe of potential investments for public bond funds is the public debt of large companies, debt of sovereigns, and debt issued by government related or sponsored entities such as Fannie Mae or Freddie Mac. Virtually all of these entities create products or provide services that are not explicitly focused on sustainability factors.
In our process, we view the comparison of ESG policies and the practices of bond issuers as a risk management exercise, making the ESG risk-assessment an integral part of our security selection process. Provided that the ESG analysis is future-focused, the benefits to investors will show up over time.
Finally, ION will help improve collaboration and demonstrate how our process works, including how we use ESG to manage risk, build products and refine our views. ION will be central to our ESG capabilities.
What changed? A number of things changed and contributed to the growth in interest. First, a number of high profile asset owners publicly declared their allegiance to RI and ESG principles. This coincided with consultants changing their practices, adding ESG-related consulting services to the other services they provide. Perhaps the most important reason was, and continues to be, a number of high profile corporate events and collapses, most of which should be identified as ESG-related problems. Examples include BP, Tesco and Volkswagen. These high profile failures remain the best advertising for an ESG integrated investment process.