As A new generation with A more Acute Awareness of impact issues steps up to the reins, Asian investment in socially responsible funds is slowly, but surely, growing, writes Mavis Teo
Just this April, UBS raised a record US$471 million for an impact investing fund aimed at developing early-stage cancer treatments. According to Susan Sy, executive director of Philanthropy and Values-based Investing at UBS Wealth Management, half of these investors were from within the Asia-pacific, who agreed to lock up a minimum investment of $500,000 for five years for an expected annual returns of more than 10 percent. The result after final closing of the UBS Oncology Impact fund took some industry observers by surprise — because Asian participation in socially responsible investing (SRI) on a global scale has traditionally been small.
Ninety-five percent of the total global monies — around $400 billion — in socially responsible funds are currently from Europe and the US. This number is set to grow as the world’s rich become more conscious of their responsibilities with wealth creation. The current number of institutional investors that are signatories to the UN Principles of Responsible Investment (PRI) now number more than 1,350, up from 200 in 2005, bearing testimony to a growing demand from the end customer.
A 2015 JP Morgan study also projects that the total invested will rise to $1 trillion by 2020. It thus follows that socially responsible investing from Asia will also grow.
While noting that there are still few families who have completely adhered to the principles of SRI, Terry Farris, managing director and Head of Family Governance and Philanthropic Practices at Taurus Wealth Advisors, shares that he knows of at least one client, a member of a Hong Kong family, who has committed her entire share of the family wealth to such investing.
With Asian investors just beginning to get their feet wet in the world of SRI, he is positive their involvement is an uptrend as third and fourth generations of Ultra-high-net-worth (UHNW) families are becoming more involved in their family businesses and the decisionmaking process of where and how to invest. These members of traditional Asian UHNW families are more aware of social causes and are more willing to commit resources to ensuring that their money has a far-reaching impact on society.
As social entrepreneurialism gains popularity, SRI no longer just means sifting out securities from portfolios according to ethical considerations (for instance, “sin” funds that go against their beliefs, such as gaming or liquor), but investing in an objective that improves the lot of others through healthcare or equips them with the right skills and know-how to better their prospects. The latter is also known as impact investing.
With the increased interest, Credit Suisse expanded its range of products that focuses on environmental and social themes just this year. As of now, the total assets invested in sustainability themes in the Swiss bank are at $18.35 billion (CHF17.7 billion). Though regional breakdown is not given, it’s possible to conclude that Asian investments are not of a sizeable percentage. Bernard Fung, head of Family Office Services and Philanthropy Advisory Asia-pacific at Credit Suisse, reveals SRI currently accounts for only five percent of clients’ portfolios.
Having said this, the bank is seeing budding shoots. In the last five years, it has launched three Emerging Markets local currency microfinance notes — structured like a bond with a two-year duration, referenced in US dollars with targeted returns of eight to 10 percent per annum — two higher education notes and a conservation finance one in Asia. The last Emerging Markets local currency microfinance note, launched in 2014, raised $50 million from HNW clients, while the last education note launched mid-2015 has brought the total Assets Under Management for the bank’s higher education solutions to $85 million. Credit Suisse next plans to issue a new education bond or note in the second half of the year, which focuses on tertiary education in Asia, including Singapore. Healthcare, education and microfinancing are the pet concerns of Asian investors, it seems.
Besides providing a feel-good story for investors, SRI also seems to give a balanced performance overall, even if returns fluctuate in the short term. Investors therefore need to hold a long-term view. However, there are also fund managers who argue that in terms of real value, the returns are not as profitable as other investments. Not many socially responsible investments have been able to yield market-
type returns and the lock-up periods for impact investing projects are usually long. An investor must therefore have risk-tolerant capital they can afford to leave alone.
It must also be noted that such funds generally require a more active management which leads to higher fees. There is currently also a dearth of information on the available investment opportunities out there and no standardised system for screening funds, making it even harder to assess or compare costs. A 2015 study by US SIF, a US association for the SRI sector, noted that half of the 16 leading money managers integrating SRI or ESG (Environmental, Social and Governance) factors in their funds do not fully disclose the specific criteria they use for screening. This is of concern as more fund managers enter SRI and claim its mantle. Disclosure should therefore be a matter of regulation.
In Asia, there is currently very little data on the exact amount of money in SRI, observes Farris. Having said this, the local authorities are taking steps towards regulating such investments. Last October, the Monetary Authority of Singapore gave financial institutions the mandate to take the lead in responsible financing (to ensure more companies practice sustainability). Industry observers take this measure to mean that SRI regulations could be in place in the near future. The very same month, the Association of Banks in Singapore released a set of industry guidelines, underscoring a commitment to this end.
But while acknowledging that steps have been made, Farris points out that efforts made by different groups to get an SRI Index up and running in Singapore have not gained much traction.
While the signs are clear that SRI is poised to play a bigger part in influencing investing decisions and the authorities are committed to ensure governance, industry observers are conservative on the pace of growth, pointing out that SRI is still a nascent industry in Singapore. “We are just starting to see the move towards SRI amongst our clients,” says Farris. “The challenge in Asia is that the typical investor will always look for the investment that will provide them the best return. Most investors are trading on a day-to-day basis while the typical SRI investment is long-term,” says Farris, who is not hopeful that we would see the same SRI track record here in Asia as seen in other parts of the world soon.
Jose Camacho, CEO of Bansea, also notes that finding a philanthropic audience to invest in start-ups with social causes can be challenging when they are not able to offer cold returns. As a result, it’s hard for companies that are trying to do good, to do well. The lack of funding and sustainable capital (along with capabilities) is often the death knell for social impact firms.
But if investing in a social cause has been pulling strongly at you, perhaps it’s best to invest without too much expectations. As returns are often slow to come, focusing on the cause rather than returns — though caution needs to be exercised, of course — could be an attitude to adopt in SRI.
Focus on the non-monetary benefits your wealth could give to a social cause you believe in. Besides money, you could also invest your expertise and skills. DBS Bank, for instance, may not currently have specific SRI funds, but the bank has a dedicated DBS Foundation that champions social entrepreneurship. To date, it has over 200 social enterprises across Asia listed with them. “Through various programmes, our clients can interact directly with the social enterprises, volunteer or even make direct donations,” says Henny Liow, chief trust officer of DBS Private Bank.
Besides, as Camacho opines, apart from monetary gains, what drives people to invest is the satisfaction in watching companies grow, helping a dedicated team succeed and giving back to society.