Good Vi­bra­tions

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

Prestige (Singapore) - - INVESTMENT -

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.

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