Impact lives and play ESG in EM, the example of Alquity
Generate positive social outcome. These four words have become a hallmark of a growing trend in the asset management industry that is either termed impact investing or sustainable investing.
London-based boutique Alquity Investment Management has been investing in emerging and frontier markets since 2009 while backing the idea of donating a proportion of its revenues – up to 25% with a minimum cap of 10% – towards charitable projects in regions where it invests.
Alquity’s CEO Paul Robinson and director Suresh Mistry have been involved in ethical investments for several years, both having met at Global Ethics, an enterprise producing consumer goods that entirely donates its profits to life-changing projects in developing countries.
It is also there they have heard for the first time of an Africa-focused investment fund with an impact investing overlay.
Alquity runs five strategies (Africa fund, Latin America fund, Asia fund, Indian Subcontinent fund and Future World fund) and claims that over 33,000 people have seen their lives positively impacted through its donations so far.
The donations were managed and allocated to the charities by the firm directly until 2015 when the manager established the Alquity Transforming Lives Foundation that aims to select and monitor charity partners as well as to maximise the impact of the donations.
Africa has been the continent where the firm has donated most of its revenues (over £400,000 from 2010 to end 2016). Some 20,000 lives have been transformed there, according to the manager, through projects like that of Afrikids, that focuses on micro-finance and education in Ghana.
The Alquity Africa fund, managed by Roberto Lampl, was the first ever launched by the manager in 2010.
As of 30 April 2017, the fund has over half of its net assets (56%) invested in South African listed companies.
Sanlam (+9.8%, South African insurance ), BidCorp (+9.1%, South Africa food catering) and Firstrand (+7.6%, South African financial conglomerate) have been among the best performers of the fund last April.
Speaking to InvestmentEurope, Alquity’s director Suresh Mistry notes an opposition between top quality governmental institutions in South Africa and a weak government. Mistry assesses that South Africa would benefit from an early departure of president Jacob Zuma.
Giving his view on Africa, Mistry stresses a positive investment outlook for the region when considering demographics, consumption trends and the need for African economies to focus ever more on their domestic growth.
He argues that the downside risk of investing in Africa is already priced in by the markets and that issues such as corruption dwell in the political background of certain African countries rather than in local companies.
ESG play in emerging markets
In Africa like in other emerging/frontier markets it invests, Alquity looks at environmental, social and governance analysis which is core its investment process. “We do not have ESG analysts, the analyst is the portfolio manager. Who better than the fund manager can know how much a stock is ESG-compliant when he is discussing with companies on the ground?” argues Alquity’s director Mistry.
Mistry acknowledges that it it not always easy to find companies that meet international ESG standards as ESG issues differ from a country/sector to another.
If Alquity requires a minimum threshold of transparency and of ESG values, Mistry points out that the manager does not expect all businesses it invests in to be perfectly in line with ESG standards but at least to be familiar with the matter, to integrate any gaps in its overall business strategy and to be committed to address ESG issues.
As an example, Mistry quotes Vietnam where appointing independent board members remains a fresh concept and they can be appointed only once a year. He says the manager may give a period of years to Vietnamese businesses to resolve the issue, if their overall ESG set gives satisfaction to Alquity.
Alquity rates from A to E the businesses of its investment universe and it does only select stocks graded A to C.
Its environmental analysis focuses on energy efficiency, climate change and wastewater. It also looks at policies around conflict minerals.
The rating’s social component encompasses various criteria including policies and procedures to ensure exclusion of child or forced labour, employee satisfaction surveys, health and safety standards, auditing of supply chain and contractors to maintain standards and interaction with local communities.
Accounting, whistleblowing and remuneration policies, independence of the board management, shareholder votes remain among the criteria considered for the governance segment.
In addition, a number of external checks are being conducted.
Alquity does not proceed to sectorial exclusions. However, the boutique does not hold companies having over 5% of their revenue coming from tobacco, gambling, narcotics, adult entertainment, weapons, liquor beverages. Moreover, it tends to avoid state-owned companies.
The firm tallies some 15 employees and has plans to make hires over the coming months.
Alquity has been recently rewarded a mandate for all its strategies from a tier-1 US institutional client.
In Europe, Alquity currently targets retail and institutional clients in the UK but also in France, Monaco, Switzerland, Luxembourg, Belgium. Its funds are also registered for sale in Sweden.