The past months have seen an increasing number of private wealth-holders going public with their engagement for integrating social and environmental aspects in their investments. An article by the Financial Times portrays Justin Rockefeller and other young members of historic dynasties that are taking their family offices into a new era of investing in line with their values. Annie Chen, a long-time onValues client, was portrayed in an August article in Barron’s and a Huffington Post blog in September. Ben Thornley, the author of the blog, notes how passion drives this new generation of investors and that “..institutional investors looking to high net worth individuals to shoulder the early-stage risk of impact fund managers, and for advisors to high net worth clients, understanding why and how the wealthy make impact investments is essential”.
During the past 30 years, financial markets repeatedly went through boom and bust cycles both in developed and emerging markets. Despite the asset price declines during bear markets, long-term investors who held on to their investments in equities and bonds still earned total returns that were well above long-term averages. Many investors have become used to the high returns of their investment portfolios and assume that future performance will be similar to what they observed in the past.
Several years ago already, onValues has started working with clients to derive more realistic expectations for future portfolio returns. Our analysis shows that the drivers leading to the exceptional returns of the past years are weakening and that asset returns will probably be below historical averages during the next decade. A recent McKinsey Global Institute report gives a good overview of the challenges ahead by taking a closer look at the driving forces of asset returns. The study concludes that in the recent past, asset returns were lifted by a unique but now fading combination of economic and business factors. Using a multi-factor approach with real economy and corporate fundamental factors, McKinsey argues that investment returns in the US and Europe over the next 20 years could be substantially lower – even in very favourable economic scenarios. These findings are consistent with those based on several other approaches seeking to forecast asset returns. onValues, for example, uses deviations from long-term asset valuation levels as one of the major determinants of future returns (see this previous news). Based on these signals we review our clients’ investment strategies, adjust expected asset class and portfolio returns, and are able to point to particularly attractive or unattractive investment areas.
Swiss pension funds still treat responsible investment mainly as an activity separate from other aspects of the investment process, rather than fully integrating environmental, social and corporate governance (ESG) considerations into investment decisions, according to a recent study by ShareAction and WWF Switzerland. This conclusion is based on a survey of the 20 largest pension funds in Switzerland, representing CHF281bn (€253bn) in assets, or around 36% of all Swiss occupational pension funds. Sonia Hierzig, research officer at ShareAction and author of the survey report, said: “The results demonstrate that, whilst the 20 funds we looked at do consider responsible investment, there’s a long way to go to adopt international best practice, particularly when it comes to transparency and climate risk management.” Ivo Knoepfel of onValues was part of the panel of experts that provided guidance for developing the survey methodology.
RS Group, the Hong Kong based family office, has just released a detailed report describing its six year journey in building a 100% sustainable and impact investment portfolio with the support of onValues. The report shows that, in addition to tangible social impact contributions, such a portfolio achieves financial returns and risk levels that are absolutely in line with traditional portfolios. In the introduction to the report, RS Group’s principal Annie Chen explains how important it was for her to align her wealth to her values and to use all forms of capital (grants and investments) in support of sustainable development in the context of a so-called total portfolio approach. onValues supported (and continues to support) RS Group at different levels: in defining a long-term strategy and asset allocation for the whole wealth, in selecting the best investment managers globally for each asset class, in regularly monitoring and reviewing the portfolio, in consolidating financial and impact information. During the launch event for the report, Annie Chen expressed her hope that by sharing her experience other family offices and investors throughout Asia will be motivated to engage in similar initiatives. More information can be found at the report's website.
The global wealth advisory industry is booming. Armies of banks, insurance companies, (multi-) family offices and asset managers now compete for the attention of asset owners, offering an unprecedented number of investment consulting services with varying degrees of quality. Disappointing investment performance and unappropriate advice have led to a lack of trust in financial consultants during a phase where unbiased advice is most needed. In collaboration with the consultant network Advisornet (co-founded by onValues), we recently organised a public workshop to discuss and further develop best-practices for the financial and investment consulting profession. About 40 practitioners took part in the event and shared their experience in striving for excellence in their profession. Prof. Dr. Thorsten Hens of the University of Zürich presented the academic state-of-the-art in investment consulting and compared this with the current offerings available at Swiss banks. He concluded that science offers robust guidelines for advisory processes which are currently only partially adopted by banks. This was followed by a panel discussion with experienced practitioners focussing on frequently encountered dilemmas during the advisory process and how to deal with them. How can we cope with weak governance at a client’s family office or institution? How do we react if a client is not prepared to cover the full cost of quality advice? How do we deal with well-known behavioural biases of clients? These were among the many issues discussed at the event which will be further explored in the context of our Advisornet engagement.
Ivo Knoepfel recently spoke at Pymwymic Impact Days*) about onValues’ experience in applying positive impact considerations to the entire wealth of clients, across all major asset classes. He stressed the importance of purpose and intentionality at different levels: at the level of single investments, of investment managers in charge of different parts of the portfolio, and when defining the strategy for the whole portfolio. In public markets, contributions to positive impact are often of a more systemic nature. Equity managers actively allocating capital to companies providing solutions to societal challenges and engaging with company management on these issues need to better report on the rationale and expected outcomes of their activities – Ivo Knoepfel stressed. He showed examples of asset managers and rating agencies that have developed frameworks to do so and reported on the experience of RS Group, a family office client of onValues, in applying an impact lens to their entire portfolio.
*) Pymwymic Impact Days is the leading European gathering of family investors and family offices engaged in the field of impact investing. This year it took place in Amsterdam on April 19 & 20.
onValues recently conducted a systematic search and selection process for German banks and asset managers that offer investment strategies based on sustainability criteria. The outcomes show that the German market still lags behind other European markets in terms of the quality of the strategies and services offered, although we were able to identify 2-3 institutions that meet our quality standards. Assessment criteria included: institutions’ strategic commitment to responsible business practices, the role of sustainability within their asset management as well as the risk-return characteristics of their main investment offerings. The analysis lead to the following main observations: Most financial institutions market sustainable services but only few demonstrate strategic, top management commitment to sustainability investments. Environmental, social and governance (ESG) criteria are rarely integrated into the overall investment process and in most cases added as an extra filter during the security selection process. There seems to be a certain standardisation of processes for using ESG criteria during security selection driven by the consolidation trend in the sector for independent ESG-research. Performance differences within asset classes are small, but vary significantly for balanced strategies, leading to the conclusion that asset allocation is a key driver of performance.
onValues has developed a set of long-term (20 years) and mid-term (3 years) scenarios as an input for developing investment strategies and contingency plans for clients. The long-term scenarios are used for strategy development and capacity building, the mid-term scenarios for implementing capital protection (and enhancement) strategies in the event of expected market dislocations. Whereas most investment advisors and asset managers focus only on economic data when defining investment strategies, onValues takes a broader view. Its long-term scenarios include assumptions on geo-political, economic, trade, innovation, demographic, social and environmental developments whose interaction then leads to certain outcomes at the level of the economy and of specific asset classes. The mid-term scenarios focus on turning points in market cycles that are triggered by economic realities and by the behaviour and perceptions of market participants. A system to monitor changes in market state that includes dimensions such as asset valuations, investor sentiment and internal market dynamics is used. onValues then works with clients to define measures aimed at protecting capital which is particularly important given the current risk of asset bubbles.
onValues has recently strengthened its macroeconomic and financial market research capabilities. The company now provides guidance on financial markets outlook based on a multi-dimensional analysis framework. Its approach aimed at better understanding mid- to long-term developments differs substantially from the short-term (3 to 6 months) focus of ‘market outlooks’ provided by banks and traditional advisors. This is in line with onValues’ focus on long-term orientated clients. Therefore onValues relies on the use of long-term data and valuation methodologies which have been proven to be robust over many investment cycles, i.e. decades. As an additional layer the framework monitors behavioral aspects of market participants thus capturing valuable information usually unrecognized in traditional financial market analysis. The onValues framework’s main goal is not to ‘time’ markets but to help clients identify ‘preventable surprises’ that can lead to substantial wealth destruction or unrealistic financial expectations.
Weitere Beiträge ...
- Strengthening mission alignment of endowments at Swiss foundations
- Engaging leading families and their nextgens
- Peter Wüthrich joins onValues
- European foundation meeting marks growing interest in mission-aligned investing
- onValues founding member of Swiss Sustainable Finance
- Network of independent investment consultancies launched
- Asian family office RS Group outlines how it integrated climate change in its portfolio
- A new industry or just a buzzword? Reflections on the state of impact investing
- New opportunities in impact investing
- Positioning Switzerland as a leading sustainable finance hub
- The link between family wealth and global resource constraints
- Mapping sustainable finance in Switzerland
- European foundations mark the trail for mission investing
- onValues calls attention to investment gold
- Impact investing for foundations – Swiss Foundations Report 2012
- Sustainable investments in Switzerland resilient despite difficult market conditions
- Mistra Foundation releases summary of 2011 review of asset managers
- Swiss pension fund uses onValues advice for one of the largest investments in microfinance
- onValues supports PRI and the UN Global Compact in improving company-investor communications on sustainability
- Ivo Knoepfel wins ESG Award
- Cleantech, microfinance, commodities, Swiss pension funds, the future of RI: onValues speaking engagements
- The Responsible Investor’s Guide to Commodities
- Principles for Responsible Investment in Farmland
- European foundations meet on mainstreaming mission-aligned investing
- Agri-investing for the long term
- ’360-degrees for Mission’ showcases SRI and impact investment at foundations
- Ivo Knoepfel joins Steering Committee of the Principles for Investors in Inclusive Finance
- Sustainable investments in Switzerland reach all-time high according to onValues survey
- Responsible investment in commodities
- SRI and impact investments at European foundations
- Improving the effectiveness of shareholder engagement – A Mistra workshop
- onValues facilitates investor meetings on shareholder engagement, climate change risks and opportunities, commodities investments
- Multi-year project on commodities investments launched
- Sustainable investments in Switzerland rebound strongly in 2009, reaching a new all-time high
- Leading Swiss business newspaper highlights potential conflicts of interest of certain investment consulting practices
- Eurosif study assesses role of consultants in the responsible investment field
- Fundamental shift in ESG
- Report on European pension funds’ investments in microfinance released
- Building better long-term investment relationships – a Mistra workshop
- Report assesses financial crisis impacts on the investment industry's consideration of ESG and climate-related issues
- Mistra publishes a summary of its 2008 review of external asset managers
- Sustainable investments in Switzerland contract in 2008, but show more resilience than the whole market
- Future proof? Recommendations to improve the inclusion of ESG issues in investment markets presented at the WEF Annual Meeting
- The Enhanced Analytics Initiative (EAI) publishes its four-year review and announces a new ESG research platform managed by the PRI
- onValues co-authors ‹Sustainable Investing: The Art of Long Term Performance›
- onValues participates in the launch of the first global academic network on ESG-inclusive investments
- onValues brings together real estate investors and academics to discuss environmental and social issues
- The UN PRI Initiative releases new assessment of ESG integration
- onValues releases detailed analysis of the Swiss sustainable investment market
- onValues takes a closer look at SRI growth statistics
- Investing in timberland
- Global Pensions Magazine publishes onValues research into sustainable real estate
- onValues contributes an analysis of climate change related investment research to the 10th Euro Finance Week in Frankfurt
- A workshop with Scandinavian and international investors confirms the relevance of environmental, social and governance (ESG) issues for emerging markets investments
- The Swiss market for ESG-inclusive investments doubles between June 2006 and June 2007
- New frontiers in emerging markets investments
- onValues profiles investment research on mergers and acquisitions (M&A)
- The Swiss market for ESG-inclusive investments reaches 17.9 billion CHF according to a survey by onValues
- onValues publishes an overview appraisal of the current state of ESG-inclusive investments
- Enhanced Analytics Initiative celebrates second anniversary in light of a strong increase in membership
- German researchers assess carbon and climate change risks for the financial industry
- onValues works with the private banking industry on expanding the scope of ESG-inclusive investment
- Communicating ESG value drivers at the company-investor interface
- Article on active ownership initiatives by investors
- Mistra and onValues advance the boundaries of ESG-inclusive investment in the fixed income domain