Author Archives: Phoenix Investor Relations

BlackRock – Larry Fink’s annual CEO letter

Focusing on climate change, BlackRock’s CEO Larry Fink, in his annual letter to CEOs published January 12, 2020, urges companies to focus more on sustainability.  He states that “Companies, investors, and governments must prepare for a significant reallocation of capital.”

Many of his comments are highly relevant for IROs.

Key takeaways:

BlackRock will not only double the number of sustainability ETS it manages but significantly, it will divest from its active portfolios those companies generating a quarter or more of their profits from thermal coal.  Mindful of the economic, scientific, social and political realities of the energy transition BlackRock will not pursue an across-the-board sale of energy companies that produce fossil fuels.

BlackRock aims to increase its actively managed sustainability assets 10X from $90 billion today to $1 trillion in the next 10 years.

Earlier in January, BlackRock joined Climate Action 100+, a group of more than 370 investment managers with a combined $41 trillion in assets. Together the campaign’s members are pressuring the world’s biggest emitters of greenhouse gases to reduce their environmental impact and improve disclosure.  BlackRock has placed environmental and climate risk among its top priorities for meetings with the public companies it owns.

“In the discussions BlackRock has with clients around the world, more and more of them are looking to reallocate their capital into sustainable strategies. If ten percent of global investors do so – or even five percent – we will witness massive capital shifts.“

“BlackRock announced a number of initiatives to place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening our commitment to sustainability and transparency in our investment stewardship activities.”

“We believe that all investors, along with regulators, insurers, and the public, need a clearer picture of how companies are managing sustainability-related questions. This data should extend beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce, the sustainability of its supply chain, or how well it protects its customers’ data. Each company’s prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders.”

“While no framework is perfect, BlackRock believes that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework.”

“BlackRock has been engaging with companies for several years on their progress towards TCFD- and SASB-aligned reporting. This year, we are asking the companies that we invest in on behalf of our clients to: (1) publish a disclosure in line with industry-specific SASB guidelines by year-end, if you have not already done so, or disclose a similar set of data in a way that is relevant to your particular business; and (2) disclose climate-related risks in line with the TCFD’s recommendations, if you have not already done so. This should include your plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized, as expressed by the TCFD guidelines.”

“We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. Last year BlackRock voted against or withheld votes from 4,800 directors at 2,700 different companies. Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable. Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”

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EFAMA – European Asset Management Statistics

“The EFAMA Asset Management in Europe report aims at providing facts and figures to gain a better understanding of the role of the European asset management industry. It takes a different approach from that of the other EFAMA research reports, on two grounds. Firstly, this report does not focus exclusively on investment funds, but it also analyses the assets that are managed by asset managers under the form of discretionary mandates. Secondly, the report focuses on the countries where the investment fund assets are managed rather than on the countries in which the funds are domiciled.

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Bank J. Safra Sarasin – Switzerland

Andy Nigg joined Bank J. Safra Sarasin in 2018 as head US & Global Sustainable Equities and is responsible for Sustainable US portfolios. Prior to this he was at Vontobel for 20 years in a variety of roles. He was senior portfolio manager and head of the Equity and Commodity Strategy within the Multi Asset Class department. Before that, he was responsible for the Global Equities Team. He managed Global and North American equity portfolios and funds. Prior to joining Vontobel, Andy worked as portfolio manager at UBS (’94 – ‘98) managing US and Canadian equity funds and portfolios. He started his career at the Retail Banking division of Hong Kong Bank of Canada in Calgary. Andy is a CFA Charterholder, holds a Swiss Banking School (now Swiss Finance Institute) degree and earned a Bachelor of Commerce from the University of Calgary, Canada.  Today, -his main focus is on US equities.

Safra Sarasin Group – Sustainable Swiss Private Banking since 1841

As an international group committed to sustainability, J. Safra Sarasin is well established through its banks in more than 25 locations in Europe, Asia, the Middle East, Latin America and the Caribbean. A global symbol of private banking and wealth management tradition, the group emphasizes security and well-managed conservative growth for its clients. At the end of December 2018, it managed total client assets of CHF 165 billion ($165 bilion) and employed about 2,200 staff, with stockholders equity of CHF 5.1 billion. Continue reading

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C WorldWide Asset Management – Copenhagen

C WorldWide Asset Management (previously Carnegie Asset Management) was created in 1986 as part of the Carnegie Group. The firm was spun out of Carnegie Investment Bank in 2009 and the name changed in 2017. C WorldWide is 80% owned by private equity Altor Fund III and 20% by employees. Today it manages <$20 billion in global equities for institutional clients in the Nordic region, the UK, Canada and Australia. Main portfolios are highly concentrated with just 30 stocks held. The investment approach is bottom up stock-picking and they focus on stocks above $10 billion market cap and the average market cap is nearer $100 billion. The focus is on companies generating free cash flow and earnings growth. In addition to the concentrated global equity strategy, the firm has an ethical and long/short version of the same strategy plus a number of more specialised strategies, including Global Healthcare.

Bo Knudsen is Managing Director and Global Portfolio Manager at C WorldWide Asset Management in Copenhagen.  He holds a M.Sc. (Economics and Business Administration) degree from Aarhus School of Business and San Francisco State University.  Bo has worked with portfolio management of global equities since 1989. Prior to joining C WorldWide Asset Management in 1994 he worked for five years as a global portfolio manager with Danske Capital in Copenhagen and ultimately held the position as Head of International Equity Investments. From 1998 Bo joined Nordea Investment Management as Executive Director and Head of Equities. He re-joined C WorldWide Asset Management in 2001 as global portfolio manager.

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Aviva Investors – Edinburgh

Aviva is the largest insurer and a leading life and pensions provider in the UK and Aviva Investors is its asset management business. The Edinburgh office was set up in 2018 with nine senior staff from Aberdeen Standard Investments. Aviva Investors manages around $444 billion. $50 billion in active equities. It has offices in 19 financial centers including Edinburgh, London, Paris, the US (Chicago) and Canada staffed by over 40 equity investment professionals.  Global equity strategies include: Income ($776 million – income and capital growth), Endurance (c.$1 billion – defensive capital growth) and launched in 2019, Unconstrained (opportunistic capital growth). AUM in global equities are currently $2.5 billion and this figure is expected to grow.

Mikhail Zverev joined Aviva Investors in October 2018 as Head of Global Equities. He was formerly Head of Global Equities at Standard Life Investments (SLI) and also portfolio manager on a number of funds. He joined SLI in 2007. After graduating from St Petersburg State Technical University with a BSc Physics, Mikhail started his career in 1998 with Trigon Capital, an Eastern European investment banking firm. He gained his MSc Accounting and Finance from London School of Economics and joined the investment banking division of Schroder Salomon Smith Barney in London in 2001, before moving to First State Investments as an Analyst, UK Equities in 2002.

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Corporate share buybacks

An interesting recent report from Goldman Sachs shows that share buybacks have been the largest source of U.S. equity demand during the last five years.  Apparently, since 2010, net corporate buybacks averaged $420 billion annually, compared to only $10 billion each from households, mutual funds, pension funds and foreign investors.

According to a Bloomberg report, Goldman studied stock performance during earnings blackout periods, when discretionary buybacks are restricted beginning about five weeks before a company releases earnings, and then for two days afterwards. During the past 25 years, return dispersion and volatility during blackout windows have been higher compared with non-blackout periods: 16 percentage points versus 14 percentage points, and 16.4 points versus 15.8 points, respectively.  Meanwhile, since buybacks have bolstered earnings per share by reducing the total stock outstanding, blocking repurchases would hurt growth in EPS. Over the past 15 years, the gap between EPS growth and earnings growth for the median S&P 500 company averaged 260 basis points. According to Goldman Sachs “In a world without buybacks, forward EPS growth could be trimmed by 250 bp,” a reduction that has historically corresponded to a 1 point decline in forward price-earnings multiples.

 

 

 

 

 

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GAM – London

Ali Miremadi is an investment director, who runs global equity funds and a US-focused fund. Miremadi was one of the principal partners at THS Partners, (acquired by GAM in 2016). He joined THS Partners in 2007. Previously, Miremadi worked at Goldman Sachs. He started his career in 1994 at Baring Securities. Miremadi holds a first-class degree in English Literature from Wadham College, Oxford and is also a CFA charter holder.

GAM is an independent asset manager, providing active investment solutions and products for institutions, financial intermediaries and private investors.  GAM employs over 900 people in 14 countries. Headquartered in Zurich, it is listed on the SIX Swiss Exchange. The Group has assets under management of CHF163.8 bn ($165 bn) as at 30 June 2018. CHF84.4 bn ($88 bn) is managed actively in-house. Continue reading

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Hosking Partners – London

James SeddonJames Seddon is one of the Founding Partners of Hosking Partners. He previously worked with Jeremy Hosking at Marathon Asset Management from 2006 to 2012. Prior to that, James spent 19 years at Rowe Price-Fleming and T. Rowe Price International where he was a Senior Portfolio Manager of European equities for the European and International Equity strategies. James began his career at Schroder Capital Management and holds a degree in Physics from Oxford University.

Hosking Partners is an investment management partnership that started in 2013. The firm has around $9 billion of assets under management through one global equity strategy. The investment team of five seeks long-term investments using a fundamental contrarian methodology. Their differentiated approach has a long-term investment horizon through a diversified portfolio of stocks with a high active share. The investment philosophy incorporates a capital cycle analytical framework: the tendency of industries with high returns to attract new capital and more competition, which over long periods of time drives down industry returns until capital withdraws, returns recover and the cycle begins again. This is combined with a behavioural approach that uses mental models to assess companies and industries. The strategy aims for alpha generation over the long term.

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Kempen Capital Management – Amsterdam

Mark Oud

Amsterdam, Netherlands-based Kempen Capital Management was established in 1991 and today manages €59.8 bn ($73 bn), of which €16.3 bn is in investment strategies and €43.5 bn in investment solutions. The firm has offices in Amsterdam, London, Edinburgh and Paris. The investment strategy is stable outperformance over the long term with ESG fully integrated into the investment process. Kempen’s investment strategies division has a number of equity strategies: small caps, high dividend, sustainable value creation and sustainable equity.

Mark Oud joined Kempen in 2017 as a senior portfolio manager for sustainable value creation. Before this he was a senior portfolio manager at Delta Lloyd Asset Management and head of Delta Lloyd’s Cyrte Investment. He previously worked at Main Capital Partners and Deutsche Bank.

Richard Klijnstra

Since August 2016, Richard Klijnstra has been head of sustainable value creation, having previously been head of Kempen’s credit team from 2006 to 2016. Prior to this, he worked at Fortis Investments in Paris and the Netherlands, and at Nationale-Nederlanden. Here he discusses Kempen’s approach to sustainable growth.

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Impact of MiFID II after 11 weeks

Many market participants expected MiFID II to start slowly as the regulations rolled out over the course of this year.  Many companies also have been talking about ‘business-as-usual’ with many in ‘wait-and-see’ mode.  Now that a quarter has passed, what is the reality?  Particularly from the buy-side’s perspective.

To help answer this question, we interviewed a sample of 50 European-based portfolio managers during the 11th week after MiFID II (March 19-23, 2018).  Their answers painted a picture suggesting more revolution than evolution.  The buy-side is clearly experiencing significant change already and it’s clearly not ‘business-as-usual’.

The results show:
  • Access has been negatively affected
  • Investors have already reduced the number of brokers they are dealing with for both equity research and Corporate Access
  • Cutbacks in research providers is already leading to restricted access to conferences and non-deal roadshows
  • Price discovery for research is evolving quickly
  • The risks of companies and investors ‘missing’ each other during roadshows has increased
  • Interesting (and worrying) divergence appearing between the communication lines issuers-to-shareholders and issuers-to-non shareholders
  • Buy-side is contacting more companies directly and would like company IR teams to also do more themselves
  • Investors are strongly in favor of an independent model for providing Corporate Access
  • Bureaucracy has increased with all interactions being logged
  • Surprisingly, some buy-siders are reporting poor responsiveness from some IR teams
The changes started pretty immediately in January with many buy-siders issuing “cease and desist” style emails to the sell-side asking them to stop sending research unless they have a contract in place.  For example, typical emails were as follows:


Our research sample was as follows:


Has the number of meetings changed?


What do investors want?
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