Mario Knoepfel, UBS Wealth Management
“We are in the process of rolling them out very shortly as part of our overall strategy of strengthening our footprint in sustainable investing,” Knoepfel said at a media briefing in Hong Kong yesterday.
The firm is expected to announce more details at the end of this month or in early April.
One of the ideas is to create a 100% sustainable cross-asset portfolio for private clients. For this product, UBS Wealth partnered with the World Bank and Hermes Investment Management to target risk-adjusted returns as well as positive social and environmental outcomes.
The cross-asset portfolios are already offered to UBS clients in Germany and Switzerland, he added.
Another investment solution will be ESG Equity Themes, which, for example, will offer investments in products that support gender diversity in corporations. The firm collaborated with index provider Equileap to help them them identify companies that empower women and have women in leadership positions on the board.
“There is evidence demonstrating that having diverse boards and diverse leadership teams result in better decision-making and financial outperformance,” said James Gifford, Hong Kong-based head of impact investing, who was also at the briefing.
Sustainable and impact (SI) investing is a subset of the broader sustainable investing space, where invested capital should generate measurable environmental and social impact alongside financial return. This is different from ESG integration, which involves including ESG factors into the traditional investment process to improve portfolio risk-return without primary consideration of the impact.
More regional demand?
The firm is seeing a huge demand for SI solutions from Asia-based clients, according to Knoepfel. Without disclosing any numbers, he said SI assets under management sourced from Asian clients grew 7x over the last three yeas.
“We started from a lower base back then. Obviously, in terms of overall volumes, we are not where Europe is, but we are catching up.”
Last year, Knoepfel said SI assets under management grew 80% and he expects that the momentum will continue with the same growth numbers this year. “That is what we are aiming for.”
Asian clients have had particular interest in impact investment products, he said.
Last year, UBS Wealth offered the Rise Fund to private investors, which is managed by private equity firm TPG. Close to 50% of the $325m raised for the fund came from the bank’s high net worth clients in Asia, according to Knoepfel.
The Rise Fund’s objectives are aligned with the UN’s sustainable development goals, and it was only previously offered to institutional investors, he added.
In 2016, the Oncology Impact Fund was created exclusively for UBS by US-based healthcare fund manager MPM Capital. At the time, $471m was raised from the bank’s clients, half of which came from Asia, according to Knoepfel.
The Oncology Impact Fund invests in companies that are active in cancer research, which includes cures, treatments and early detection.
Returns vs sustainable
One argument against sustainable investments or impact investments is that investors sacrifice returns. There is justified skepticism around claims that sustainable or impact products out-perform the broader market. However, Knoepfel believes that these investments are on par with traditional investments.
Taking the US equity market, for example, Knoepfel said that in the last 26 years, the average return and volatility of the S&P 500 is very similar to the those of the MSCI KLD 400 Social Index, which includes 400 US stocks with high ESG ratings and excludes companies whose products have negative social or environmental impact.
However, on a three-year basis, the MSCI KLD 400 Social Index under-performed the S&P 500.
Likewise, the MSCI World ESG Leaders also under-performed its counterpart the MSCI World, according to FE Analytics.
Three-year cumulative performance
Three-year annualised volatility
|MSCI KLD 400 Social||12.27|
|MSCI World ESG Leaders||11.71|
Source: FE Analytics