Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Australian Ethical and Green Alpha present the case for investing sustainably
At the recent Inside Network ESG Master Class, Australian Ethical’s chief investment officer, David Macri, alongside Mike Murray, head of equities, together with Garvin Jabusch, chief investment officer of US-based asset manager Green Alpha’s long-only equity strategy, presented the case for investing sustainably across their funds.
Green Alpha uses a simple yet effective long-only investment strategy. Jabusch says, “we are looking for companies that are the best innovators, we are looking for stepwise changes, redefinitions of a given industry, that in turn will drive market share higher. And then overlay the fundamentals to ensure we get the company at an attractive valuation. The intersection of those three things is where we get our portfolio stocks.”
Green Alpha seeks the brightest innovator companies with very impressive IP; ones that own their disruptive intellectual property that defines change are the ones that are the most successful. Any other company that competes will need to license the IP from the owner. This is a high-revenue business for the IP owner.
Gaining portfolio exposure to the intellectual property owners of cutting-edge technology that creates change is the key. “We believe it’s these companies that stand the best chance of gaining market share and we then attempt to gain a good entry price. That’s the short summation of Green Alpha’s portfolio creation style.”
The manager believes the next economy will be a sustainable one. That is, one that rests on:
- Economic productivity gains – which refers to reducing the quantity of inputs to generate the number of economic outputs.
- Renewable energy – any attempt to grow the economy by fossil fuels will simply not work indefinitely for the long term.
- Waste – Instead of mining new minerals and metals, recycling current materials.
- Equitable distribution of wealth – Is the cause of economic collapse. Equity ownership and wealth over income.
These are the four pillars that Green Alpha believes will define the next economy. This is not directly aligned with ESG strategies. which simply look for companies with a high ESG score. “We think this doesn’t investment style doesn’t guarantee to work. Instead, skip formal ESG ratings and look at a company and how it gets paid,” says Jarbusch. “It creates a clearer line of sight into the extent of how they are having an impact. If they are paid to provide a solution to global systemic risk, that’s an impact. If they are paid to cause systemic risk, then there is no interest in investing in these companies.”
In other words, the question is, what does the company do, as opposed to what is its ESG score.
The Australian Ethical approach is very similar to the Green Alpha one. “Investors will come to you as advisers wanting to play their small part in making a difference and have a positive influence on the world and their legacy,”says Macri. “You need to look at investment strategies that go beyond simply taking risks and opportunities that take ESG into account. They want a strategy that solves climate change issues.
“The big shift to ‘go green’ is happening and it’s indisputable. Ten or twenty years ago, speaking about climate change and ESG, would get you a blank stare. Australian Ethical made this shift back then, so it’s not new to us. It’s embedded in the way we do things.”
Non-financial metrics are as important as financial metrics, says Murray. “Whether you believe the science or not, it’s happening. Companies are now taking a leadership role in solving climate change. And we support that. A new market is being created from this transition.
“Some old-school fund managers that have built their business on shareholder value have found it difficult to transition to address today’s issues. Australian Ethical’s goal is to put ethics in the heart of everything we do and to have a sustainable and financial outcome.”
