Impact investing should be ‘mission-driven’, Regnan says

Tim Crockford, Regnan

Editor’s note: This article was first published on ESG Clarity Asia.

Australia-headquartered Regnan, which is affiliated with UK-based fund manager J O Hambro Capital Management, has launched the Regnan Global Equity Impact Solutions Fund to professional investors in Asia, after receiving regulatory approval from the Monetary Authority of Singapore (MAS) to be distributed as a restricted scheme.

First launched in October last year, the fund is led by senior fund manager and head of equity impact solutions Tim Crockford, whose four-person team moved to Regnan from Federated Hermes where it launched a similar strategy in 2017.

Regnan and J O Hambro are owned by Pendal Group, which assumed full ownership of Regnan in 2019. Crockford’s team, which comprises fund manager Mohsin Ahmad and analysts Maxime Le Floch and Maxine Wille, is Regnan’s first investment management team. Previously, Regnan only supplied impact-related research to third-party fund managers.

“As the name of the strategy suggests, this is all about solutions,” Crockford said during a virtual briefing yesterday.

“Impact investing takes a very different stance from sustainable responsible investing (SRI) and ESG integration. SRI and ESG integration are fundamentally about mitigating and reducing your exposure to the companies that are creating challenges.

“What impact investors try to do is build portfolios that only invest in companies that are able to contribute a solution to an environmental or social problem.”

Leveraging on Regnan’s research, Crockford and his team first identify which products and services are best-placed to solve major environmental and social challenges globally. After identifying these solutions, the team identifies which companies that offer those solutions.

“What we are ultimately doing is positioning the portfolio to benefit from these emerging growth opportunities as demand for these solutions grow over the next decade.”

IMPACT ASSESSMENT

Crockford noted that these companies should be “mission-driven businesses”, whereby the intention of a company is to produce a product or service that help solve an environmental or social challenge.

That means that the strategy will not include global conglomerates or mega-cap companies that have just decided to get into a small niche product or service that will “help them look a bit greener”.

Instead, the fund will mostly comprise of more small- to mid-cap names, where their businesses are built around environmental and social solutions.

“Their R&D investments, their human resource investments should justify and support the mission statement that these companies have. What we are looking for is pure intentionality,” Crockford said.

Market-cap weighting

The fund also does not invest in widely-known technology companies, such as the FAANG (Facebook, Amazon, Apple, Netflix and Apple) stocks, as they were not created with the intention of solving environmental or social challenges.

Regnan Global Equity Impact Solutions – sector and country weighting

Crockford noted that while the strategy is underweight technology, it invests in “new technologies”.

“We are overweight ‘new technologies’, but those new technologies tend to be in the industrials or healthcare space.”

ADDITIONAL IMPACT

The team’s impact assessment also includes looking at whether companies can deliver “additional impact”.

“We are not investing in any old company that does something sustainable. What we are investing in are only those companies that are truly trailblazers, innovation leaders that are able to deliver additional impact that their peers cannot match.”

For example, the fund has never invested in solar companies. While solar companies provide a great solution to the environment, Crockford hasn’t found a business that has delivered something innovative that can broaden the adoption of or lower down the costs of solar energy.

“It is different in the offshore wind energy space. There is one standout leader, which has a 60% market share globally because of its technology edge.”

Companies that are able to provide additional impact will have a financial advantage over their competitors, which in turn should also provide financial returns to investors.

“There is no prioritisation in terms of providing impact or returns to investors. It is one that drives the other,” he said.

Regnan Global Equity Impact Solutions – Top 10 holdings (%)

Assets of the strategy have grown to $200m since its launch in October, according to Crockford.

Separately, Regnan also announced that it will be adding two fund managers to manage a global equities sustainable water and waste investment strategy later this year.

Senior fund manager Bertrand Lecourt and fund manager Saurabh Sharma will be joining Regnan in April from Fidelity and will be based in J O Hambro’s London office. They currently manage $2.5bn of assets within a sustainable water and waste strategy, including the $2.4bn Luxembourg-domiciled Fidelity Funds – Sustainable Water & Waste Fund, which invests in companies involved in the design, manufacture or sale of products and services used in the water and waste management sectors.

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