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.
Sustainable funds boom surges to another record
Flows into ESG-focused managed funds hit a record $2.9 billion during the June quarter, as total assets in that group jumped 66 per cent for the full 12 months, according to the latest report by Morningstar, for Australia and New Zealand.
The report, based on a universe of 135 Australia and New Zealand ‘sustainable funds,’ shows total assets reached $33.42 billion, which was an 18 per cent rise on the March figure and 66 per cent up on the end of June last year.
Christopher Franz, Morningstar’s manager research and senior analyst for ESG, said the “blistering pace” in the sustainable funds market involved the highest quarterly flows on record. There were three new funds launched in the quarter.
Despite the acceleration in growth for the sector, Australia and New Zealand remain behind some overseas markets in product offerings for the sustainable funds market. Australasia was still relatively small compared with the US and Europe, the report said.
The Australasian market was also relatively concentrated, especially at the very top. The ten largest funds account for 74.9 per cent of the market, while the top two – Vanguard and Australian Ethical Investment – account for 20.1 per cent and 18.2 per cent respectively. The only NZ manager in the top 20 is Simplicity, which is ranked ninth, with 3.2 per cent.
Unlike the rest of the public markets, however, actively managed fund flows and total assets were not dominated by managers with more passive strategies. The three with index or index-like strategies in the top ten are Vanguard, BetaShares (with 8.5 per cent) and Dimensional Fund Advisors with 5.8 per cent, accounting for 34.4 per cent of total assets in the top ten for the sustainable group.
What Morningstar refers to as “allocation funds,” including factor and multi-sector funds, slightly topped equity strategies for flows over the June quarter, gathering $1.24 billion, behind strong showings from Pendal Sustainable Balanced, Pendal Sustainable Conservative, and Australian Ethical Balanced.
The report noted that ASIC announced a greenwashing-related review in early July following regulation offshore, particularly in Europe. New Zealand also announced mandatory climate disclosures for financial organisations in April 2021, which are set to take effect in 2023.
For its part in allowing better transparency for investors concerned about the greenwashing issue (whereby managers are less committed to the ESG philosophy and more interested in appearances), Morningstar has commenced assessing all managers on the research house’s own ‘ESG Commitment Level.’ This looks at philosophy as well as process, resources and active ownership considerations.
A total of 102 funds in the 135, for instance, have an exclusion policy for certain stocks, the most common being the exclusion of tobacco stocks and those involved in controversial weapons.
