Mark Mobius
Soft approach
Finding companies to invest in will require a lot of work, Mobius admitted. While there are many candidates whose ESG practices could use improvement – he suggested throwing a dart at a list of all stocks in the world – the difficult question is which companies will be open to improvements.
“Very often you find resistance,“ Mobius said. Instead of fighting the company’s management, however, his approach will be to work with companies where he can see “in their heart” the willingness to change.
Of the three ESG factors, corporate governance will be the main focus, as this is where Mobius and his partners see the biggest potential to exercise their influence effectively.
Hardenberg noted that while helping companies to better deal with environmental and social issues, such as toxic waste or employee conditions, is the firm’s aim, “the best path towards having a significant impact on improvement in environmental and social matters is always through the door of governance”. Without improvements in governance, “you cannot expect any meaningful and sustainable changes” in the other two factors.
Mobius, Hardenberg and Konieczny see China and India as the biggest areas of opportunity for this approach, but they said they already had in mind companies in Korea, Eastern Europe, Africa, the Middle East and Latin America.
“We’re looking at countries where regulation is behind, where there’s an arbitrage opportunity in regulation, in policy and in governance,” said Hardenberg.
He added that in such countries, with the right intentions, tools and recipes, one can have impact on decision makers involved in designing a better framework of transparency and governance.
The team
Mobius, who is 81, left Franklin Templeton in January this year, after a 30-year career, during which he established and led the firm’s emerging markets group. He recruited Hardenberg and Konieczny late last month.
The three managers worked together at Franklin Templeton for more than a decade. They had in mind launching an ESG fund for “almost a year now”, according to Hardenberg. Doing it in a small, independent firm allows them to be highly focused, unlike at Franklin Templeton, where Mobius’s team ran 80 portfolios. They will also be more flexible in setting their own policies on the use of techniques such as derivatives.
The new fund will be a best-ideas, benchmark-agnostic, highly concentrated portfolio of up to 30 stocks, initially small and medium companies. It will be run as a long-only strategy, but it will use derivatives to limit risk.
While the team will make investment decisions as a three-person committee, the partners’ areas of expertise differ. Konieczny is an expert in Eastern Europe and global private equity, Hardenberg has run global frontier markets funds, and Mobius has extensive experience in Asia. They are planning to hire “five or six” analysts by the end of the year, according to Konieczny.
“For every stock that goes into the portfolio we’ll have an action plan of engagement with the company, especially at the corporate governance level,” Konieczny said.
While the trio has been doing a lot of work on innovative sectors, such as technology or e-commerce, other sectors, such as commodities, will not be excluded. “[Commodities] are not associated with ESG, but our goal is to bring improvements, so such ‘outliers’ create opportunities for us,” said Konieczny. “The bigger the change, the higher the upside.”
