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.
One in two advisers now embracing ESG
“Greenwashing” has once again been highlighted as the major challenge for the financial advice industry when it comes to embracing responsible and ethical investment options. This was among the major conclusions from Australian Ethical’s Investment Trends Report on ESG in the financial advice industry.
Australian advisers are “embracing responsible investing as an opportunity to enhance their value proposition and build better rapport with clients,” the report says, with one in two advisers reporting they discuss ESG investments with clients, up from just one in five in 2016.
One of the key drivers of this trend is that discussions around ethical investing, values and what really matters in life is allowing advisers to build better rapport with new clients in the information-gathering stage. Some 45 per cent of advisers highlighted this fact, which echoes the fact that a large portion of client discussions are increasingly around non-investment matters.
The biggest challenge facing the investment industry, particularly at a corporate and pension fund level, has been engagement, with the default response too often being along the lines of “superannuation isn’t really my money.” Yet ethical and ESG-focused discussions are said to be creating greater engagement with investors and portfolios; in fact they were flagged as the biggest benefit of having a dedicated view on ESG.
Winning more clients is obviously important, with 36 per cent saying this had been the case since they started including these considerations in their business, but without a clear policy and approach within portfolios this can be short-sighted. Advisers have highlighted a number of traits they are seeking in managers with whom they partner, the most important being clarity on what responsible or ethical investing means. This extends to the important of client appropriate collateral to support discussions.
The introduction of FASEA included the need to give broader situational context to clients’ circumstances and expectations, which was reflected in the fact that 65 per cent of advisers believe ESG considerations are required to fulfil their best interest duty.
When it comes to portfolio construction, actively managed strategies, whether managed funds or ETFs, are preferred over passive funds, likely given the greater transparency into ethical positions on certain companies. The trend has evolved from most first setting-up an ESG portfolio alongside their core, to some 44 per cent indicating that they incorporate responsible investment consideration into their existing models.
And what’s most important when selecting a partner? Fees remain a key consideration, but joined by the manager’s performance track record, with the brand name and reputation an increasingly important consideration.
