The move from Viridian and CFS to provide personal advice in a scaled manner highlights a growing willingness within the industry to fix its own problems in lieu of waiting for the government.
Private markets are worth around $14 trillion globally, ASIC believes. It’s not sure, and that uncertainty hints at the wider problem – private markets, and their effect on public ones, is still largely a mystery.
Responsible AUM grows 30 per cent, leaving market behind
As covered in Ishan Dan’s article here, the Responsible Investment Association of Australia (RIAA)recently released their Benchmark Report for 2021. It is somewhat of a temperature check on the investment management industry with the RIAA increasingly standing out as the leader in responsible investment accreditation and assessment.
According to the Australian Bureau of Statistics some $3.2 trillion is currently invested into managed funds or unit trusts in Australia, spread across hundreds of different groups. The RIAA Benchmark report seeks to consolidate what can be highly fragmented data into a single source of truth.
With the help of their supported in AXA, BT and Australian Ethical, along with research consultants at KPMG, the report assesses a universe of 198 investment managers and asset owners who are registered or claim to be practising Responsible Investment in their core businesses.
Despite the growing popularity of responsible investing with investors, only 59 of the 198 managers in the investment universe responded to the detail survey, with KPMG undertaking a desktop analysis of the remaining 139. Not unexpectedly, the results were incredibly strong and offer a positive outlook for the trend to more ESG-focused investing.
Of the 198 managers in the research universe, 54 groups were assessed by the RIAA as Responsible Investment Leaders. Whilst this is a 25 per cent increase from 44 in 2020’s report, leaders remains just one quarter of all those managers assessed.
Some of the new additions in 2021, which were required to score at least 75 per cent on RIAA’s strict criteria, including Lazard, Fidelity, Martin Currie and Natixis. These groups joined a list of some of Australia’s largest investment managers already recognised as leaders including Franklin Templeton, First Sentier, Magellan, Pendal and Australia’s ‘original’ Responsible Investment Manager, Australian Ethical.
The detailed analysis suggests that a commitment to Responsible Investing is benefitting both investors and fund managers alike, with the asset under management of ‘responsible leaders’ gaining $298 billion to $1.28 trillion in 2021 compared to the rest of the market which fell $234 billion.
Despite the growing number of responsible investment leaders, the most popular approach remains the integration of ESG in investment decisions, which is somewhat of a wide spectrum for investors to consider. Negative screening of investments is a close second along with ‘engagement’ with company boards. The other and generally more positive integrations such as positive screens and sustainability themed investment solutions remain a distant fourth.
What will likely be most interesting to advisers is the growing confirmation in performance between ‘responsible’ managers and the rest. According to Morningstar data, the outperformance of responsible managers is more pronounced in international equity funds, beating the benchmark over one, three and five years; the performance is 11.4 vs. 9.8 per cent in the later.
It has proven more difficult for this cohort of managers to collectively outperform in Australia, primarily due to the dominance of mining and banks within the ASX300 index. Responsible managers have delivered broadly similar returns as the Morningstar Category Index, but weaker than the ASX300, 7.4 per cent vs. 8.8 per cent over the last five years.
